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Roth IRAs
The Farmers Roth IRA allows you to buy an Individual Retirement Annuity with after-tax dollars now and withdraw principal and earnings not subject to income tax after five years. You can withdraw funds after age 59 1/2, or sooner to pay for qualified educational expenses or the purchase of a new home.
Broader eligibility requirements
There is no age limit for making contributions to a Roth IRA. You must have earned income equal to the amount of your contribution, up to $4,000* annually for an individual or a combined $8,000* for a couple. For those 50 years and older additional catch-up contributions may be made.
Limits on contributions
If your modified adjusted gross income exceeds $150,000 and you file jointly ($95,000 for single filers), the amount you may contribute is gradually reduced and phased out. The combined total of IRA and Roth IRA accounts cannot exceed the maximum annual contribution of $4,000* per individual. The Roth IRA must be kept in a separate account
Qualified distribution
Under certain conditions, you can withdraw from your Roth IRA without paying taxes or penalties. First, you must wait five years after the first tax year in which you made contributions. Second, you must have reached the age of 59 ½ or the withdrawals must be due to:
Disability
First home purchase
Death
Non-qualified distribution of earnings is taxable income and can be subject to a 10 percent Internal Revenue Service penalty.
The Choice
Making the choice between a Traditional and a Roth IRA is not a difficult one. The factor that you will most consider is the timing of the income tax benefit. With a Traditional IRA, the tax benefit is usually taken when the contribution is made to the IRA. For the Roth IRA, because you cannot take a tax deduction for the contributions made, qualified distributions are tax-free. If you are unable to take a deduction for a contribution made to a Traditional IRA, it may make better sense to contribute to a Roth IRA instead. Should you decide later that you contributed to the wrong type of account, you can always change you mind and move the contributions to the other type of IRA. This is referred to as a "re-characterization." Should you decide to re-characterize your IRA contribution, you must contact your IRA custodian to determine their documentation and procedural requirements.
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Notice: This document is for informational purposes only. You should consult your attorney, accountant or tax adviser for specific legal or tax advice.
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