A Roth individual retirement arrangement offers investors tax-free growth and withdrawals at retirement. It is a good choice for younger workers, who pay taxes at current rates but will benefit from both savings and earnings at retirement when all withdrawals are tax-free. There are no limits on the total that can be saved in a Roth. There are limits, however, on annual contributions and on income to qualify for a Roth account.
You can contribute up to 100 percent of your income to a Roth IRA, subject to limits on the total. In 2012, basic annual contributions were limited to $5,000, or $6,000 for those 50 and over. Tax year 2013 limits are $5,500 and $6,500, respectively. The contribution, however, can't exceed your total compensation. Rollovers from traditional IRAs or other retirement accounts don't count against this limit.
A couple filing a joint tax return is eligible for a double contribution, even if only one spouse works. That boosts those limits to $10,000 or $12,000, or for those 50 and over to $11,000 or $13,000. The only limit is that neither spouse can have another retirement plan at work and the contribution can't exceed the total gross income on the joint return.
Income and filing status also affect Roth contributions. For tax year 2012, a couple with joint income up to $173,000 can contribute the maximum. The contribution is reduced if income is between that amount and $183,000 and no contributions are allowed for incomes over $183,000. For single filers, those limits are $110,000, up to $125,000 and above $125,000. Tax year 2013 income limits are raised by $2,000 for single filers and $5,000 for joint filers, respectively.
Anyone with earned income can set up a Roth account and you can make contributions at any age, even past the 70 1/2 limit set on traditional IRAs. There also are no mandatory withdrawals from Roth IRAs, so both contributions and earnings can stay in the plan as long as you like. If you have both a Roth IRA and a traditional plan, your contribution limit is for the combined plans.
Bob Haring has been a news writer and editor for more than 50 years, mostly with the Associated Press and then as executive editor of the Tulsa, Okla. "World." Since retiring he has written freelance stories and a weekly computer security column. Haring holds a Bachelor of Journalism from the University of Missouri.