First-time visitor: Roth IRAs

[Guest NnWylie]

I just found this board and read as many correspondences as I could find on the subject of Roth IRAs.

John G had this to say in a reply to kathye's post: "assuming that you qualify for a Roth in both years".

1. What does it take to qualify for a Roth IRA?

I am 61 and divorced. I understand I can contribute $3500 per year as long as my earned income for the year is the same or more than the $3500.

I am currently on sabbatical from operating my piano studio (therefore, no earned income June-December 2004) in order to write a book but I had more than $3500 earned income this year Jan-June. (I am living on the monthly income from my ex-husband's pension plan.)

2. Is it possible to start contributions to a Roth IRA this month, December, or is there an earlier cut-off date requirement? (I read something about a mid-April date but wasn't clear on it's significance.)

3. In 2005, is it correct that I wouldn't be able to open or make a contribution to a Roth IRA until/unless I began working again?

A few months ago, before I found this board, I went to a community bank in the little town to which I relocated recently. I asked to speak to someone about Roth IRAs and a woman came out into the lobby to talk to me (quite different from the big city atmosphere I'm accustomed to where you're ushered into a private cubicle to have financial discussions--I had to chuckle inside).

The conversation was very brief because I wasn't sure I was being given accurate information. The woman told me I couldn't open an account because I was retired.

Confused me.

4. What constitutes "retirement"?

5. I am not currently collecting social security but if I were to do that when I turned 62, would that preclude me from opening/contributing further to a Roth IRA?

6. Basic question about the Roth IRA account. Each new year that you make a contribution, does it go into the SAME Roth IRA account or might individuals have many different Roth IRAs?

Thank you for reading and for any help in answering my questions.

Nancy

[John G]

You should get a copy of IRS publication 590 which covers many issues you have raised. Answers in brief follow:

1. What does it take to qualify for a Roth IRA?

First, you need to have earned income. I will assume that you now file a seperate tax return and that the type of income you have is "earned" rather than pension, dividend, capital gain, interest, etc. If you do not exceed the six figure income threshold, you are eligible for a Roth. There is no age cutoff.

2. Is it possible to start contributions to a Roth IRA this month, December, or is there an earlier cut-off date requirement? (I read something about a mid-April date but wasn't clear on it's significance.)

I am not sure I understand this question. You can contribute in a lump amount at any time during the year, or systematically such as with an automatic monthly check, or at various times. You have to April 15 of next year to make the contribution for 2004.

3. In 2005, is it correct that I wouldn't be able to open or make a contribution to a Roth IRA until/unless I began working again?

You can make the contribution before you start working, but you must eventually have earned income during the year. That income could come next summer and you still could fund your Roth in January.

4. The woman told me I couldn't open an account because I was retired.

Retired? I don't think this concept has any meaning for a Roth. If you have earned income, you may qualify for a Roth, regardless of age.

4. What constitutes "retirement"?

Good question, but I don't think it is relevent to your Roth decisions.

5. I am not currently collecting social security but if I were to do that when I turned 62, would that preclude me from opening/contributing further to a Roth IRA?

Don't know, maybe one of the tax advisors can answer this question.

6. Basic question about the Roth IRA account. Each new year that you make a contribution, does it go into the SAME Roth IRA account or might individuals have many different Roth IRAs?

You choice. There are practical reasons for having one Roth, such as minimizing annual fees and keeping management simple, but there are no IRS rules governing number of Roths. Note, the maximum contribution is fixed by your circumstances and you can not put in additional funds because you have three Roth accounts.

[No Name]

Three cheers for John G for stepping up.

Not a "tax advisor", but I'd have to say 5) Should have no bearing on opening a Roth IRA.

Comes to mind, however: Why a Roth? Maybe your tax bracket is low enough that deductible/non-deductible is moot? Interesting....

[Guest NnWylie]

To John G and No-Name,

I thank you for your posts of 3:09 a.m. and 3:14 a.m. respectively. While I was enjoying a night-time respite under warm covers, you postponed the same for yourselves to serve as Good Samaritans on my behalf.

John G., Thanks for taking the time to respond to all my queries. You have a Gift for speaking in lay-man's language and I thank you especially for all the easy-to-understand answers.

Happy Holidays,

Nancy