Roth IRA

A Roth IRA allows you to accumulate earnings on a tax-deferred basis and withdraw those earnings federal-income-tax-free for qualified distributions Unlike a Traditional IRA, contributions to a Roth IRA are not deductible from your gross income on your federal income tax return. However, since you have already paid taxes on the money you've contributed to the account, contribution dollars can be withdrawn at any time without tax consequences.

Eligible Participation, Depending On Filing Status And Adjusted Gross Income

You can contribute to a Roth IRA at any age as long as you have earned income. However, there are limits on how much income you can have.

The annual amount you can contribute to a Roth IRA is solely depending on your adjusted gross income, as determined on your federal income tax return. The following table should help you determine whether or not you are eligible to contribute to a Roth IRA.

You can make annual contributions to a Roth IRA of up to $5,000 or 100% of your earned income, whichever is less. An aggregate of $10,000 can generally be contributed per married couple ($5,000 per person) provided that either you or your spouse has earned income of at least that amount. Contribution limits are set according to phase out ranges of your adjusted gross income -- see table above. The $5,000 and $10,000 annual contribution limits apply to the combination of all of your Traditional and Roth IRAs.

If you are age 50 or older, you may make an additional $1,000 "catch-up" contribution to your IRA.

You generally may also be able to convert money in an existing traditional, SEP, or SIMPLE IRA account to a Roth IRA. You'll pay any taxes due at the time of conversion, but you won't have to pay any penalties.

The money that you put into your Roth IRA can be taken out at any time for any reason. The earnings on those contributions can only be taken out tax-free if this or another Roth IRA has been in existence for five years and the distribution is made for one of the following: after turning age 59½, after your death, if you become disabled, or to pay for a first home (up to $10,000). Other withdrawals are generally subject to tax and an additional 10 percent penalty tax.

Unlike a Traditional IRA, you don't have to take annual required minimum distributions (RMD) after you turn age 70½ from a Roth IRA. That's part of its flexibility. Some people prefer to keep the money in their Roth IRA accumulating until late in retirement, to pay for any needed long-term care. Others use it to pass on funds to their heirs.

Neither State Farm nor its agents provide tax or legal advice. Please consult your own adviser regarding your particular circumstances.