How Roth IRAs Work

Qualifications for Roth IRA Participation

Make sure you know the Roth IRA rules.
Make sure you know the Roth IRA rules.
Elizabeth Young/ Stone/Getty Images

Like all good things, there are certain limitations placed on the Roth IRA. This type of IRA was developed specifically with middle-class Americans in mind, so there are obviously income restrictions and contribution limitations, but the expected age limits may surprise you.

Unfortunately, if you're single and have an adjusted gross income (AGI) of $110,000 or more, or if you're married and filing your taxes jointly and have an AGI of $160,000 or higher, you're not eligible to contribute to a Roth IRA. Think about investing those six-figure salaries into other high-return retirement options. Another income rule with Roth IRAs is that you must earn a minimum annual income equal to what you contribute to your Roth IRA. If you earn only $3,000 a year, you can contribute no more than $3,000 annually to your Roth IRA. Everyone else can contribute a set amount, determined by age, annually.


In 2007, someone under the age of 50 could contribute $4,000 annually to a Roth IRA, and a person at least 50 years of age could contribute $5,000. That limit was increased in 2008 to $5,000 a year for someone who is under 50 years of age. A person who's at least 50 years of age may contribute $6,000 a year to a Roth IRA. Beginning in 2009, these limits will increase by $500 each year to accommodate inflation. So, for example, in 2011, a 35-year-old can contribute $6,000 that year. Then, jumping to year 2012, that same person can contribute $6,500 to a Roth IRA.

The hairy thing about a traditional IRA, like many other retirement plans, is that you're required to start making withdrawals when you turn 70 ½. This can stifle some retirement hopes, since most Americans will work well into traditional retirement age and hope to continue to generate a return on retirement investment options. The good news, however, is that a Roth IRA allows you to contribute as long as you'd like. There's no set withdrawal date. In fact, you can leave your money in this tax-sheltered account as an inheritance for your heirs, with no intention of ever using it for yourself. This is a great benefit for your heirs, since there's no penalty to a beneficiary who inherits a Roth IRA. Your beneficiary can just keep the Roth IRA account and continue to grow it, or he or she can withdraw funds, all tax-free.