A Roth IRA is a tax-advantaged savings plan that provides you with tax-free money after you retire. This makes adding as much as you can to your existing Roth IRA a very good retirement savings strategy even though you cannot deduct contributions. You must wait until you are at least age 59 1/2 and the Roth IRA is five years old before you start withdrawing investment earnings.
The Internal Revenue Service permits you to add up to $5,000 annually to an existing Roth IRA. If you have a traditional IRA and Roth IRA accounts, your combined contribution to all accounts is limited to $5,000. You or your spouse must have compensation income, such as wages or self-employment earnings that are at least equal to the amount you contribute. When you turn 50, the contribution limit increases to $6,000. Unlike traditional IRAs, which do not allow contributions after age 70 1/2, there is no age limit for making contributions to a Roth IRA.
IRS rules set income limits for making contributions to existing Roth IRAs. If you are married and file a joint return, the amount you may contribute is reduced starting when your adjusted gross income reaches $173,000 and goes down to zero once your AGI exceeds $183,000. Under this phase-out rule, single taxpayers and heads of households have a range limit of $110,000 to $125,000. If you are married and file a separate return, you cannot add contributions once your income reaches $10,000. These limits are for tax year 2012; the IRS updates phase-out limits annually, so check the IRS website for current figures.
Spouses may have their own Roth IRAs. If they file a joint tax return, only one spouse must have earned income for the couple to add money to existing Roth IRAs. This means that a married couple can make total contributions of $10,000 per year until age 50, when each can begin adding a maximum of $6,000 per year after turning 50, bringing the maximum combined contribution to $12,000.
There are no income restrictions or maximum annual contributions if you want to roll over funds from another retirement plan such as a 401(k) or traditional IRA to an existing Roth IRA. If you roll over funds from another retirement account, such as a traditional IRA, into a Roth IRA account, you may incur income taxes and penalties. But no taxes are levied on transfers between Roth IRAs. Rollover money must remain in the Roth account for five years before you can withdraw it tax free.