How do you start a Roth IRA? Setting up a Roth IRA account isn’t that difficult. It will be the job of the IRA provider to determine whether you qualify for this type of IRA. But you need to understand the basics of Roth IRA before you decide to start one. When it comes to Roth IRA rules, it may refer to eligibility rules, contribution rules as well as withdrawal rules.
First, let us discuss how you can qualify for a Roth IRA. As mentioned earlier, starting a Roth IRA isn’t that difficult. Unlike your traditional IRA where you need to be under age 70 ½ years, with Roth IRA, there is no age restriction. All you need is some form of compensation. When it comes to compensation, it could be from salaries, wages, bonuses or commissions.
If you meet the qualifications, you can then start to make contributions to your Roth IRA. But you also have to know that there is a maximum amount you can contribute to your Roth IRA. When it comes to contributions for Roth IRA, you have standard contribution and catch-up contribution. The standard contribution limit for Roth IRA for the year 2010 and 2011 is $5000 while the catch-up contribution for Roth IRA is $1000. You are allowed to make a catch-up contribution if you are 50 years of age or older. If you add the maximum amount for standard contribution and for catch-up contribution, you will have a total amount of $6000 in contributions.
When can you withdraw funds from your Roth IRA? When it comes to IRA distribution rules or withdrawal rules, you have qualified distribution and early distribution. A qualified distribution is basically just like a “normal” distribution. You can withdraw funds from your Roth IRA in the 5th year of making contributions for your Roth IRA and when you reach the age of 59 ½ years. If you need to withdraw funds from your Roth IRA before this time, it is possible for you to make an early withdrawal. However, there will be a 10% penalty for the early withdrawal.