Roth IRA
As with all IRAs, the Internal Revenue Service mandates specific eligibility and filing status requirements.
[9] The Packwood–Roth plan would have allowed individuals to invest up to $2,000 in an account with no immediate tax deductions, and the earnings could later be withdrawn tax-free at retirement.
In 2000, 46.3 million taxpayers held IRA accounts worth a total of $2.6 trillion in value according to the Internal Revenue Service (IRS).
[10] In 1997, Roth wanted to restore the traditional IRA which had been repealed in 1986, and the upfront tax deduction that goes with it.
Under congressional budget rules, which worked within a 10-year window, the revenue cost of giving that tax break to everyone was too high, so his staff limited deductible IRAs to people with very low income, and made Roth IRAs (initially with income limitations) available to others.
With these accounts, the government is "bringing in more now, but giving up much more in the future," said economist and Forbes contributor Leonard Burman.
Transactions inside a Roth IRA (including capital gains, dividends, and interest) do not incur a current tax liability.
The effect of these rules is that, in most cases, no portion of the Roth IRA will be subject to taxation in Canada.
A taxpayer can contribute the maximum amount listed at the top of the page only if their Modified Adjusted Gross Income (MAGI) is below a certain level (the bottom of the range shown below).
People who are married and living together, but who file separately, are only allowed to contribute a relatively small amount.
However, once a Roth IRA is established, the balance in the plan remains tax-sheltered, even if the taxpayer's income rises above the threshold.
Backdoor Roth IRA contributions were explicitly allowed by the Tax Cuts and Jobs Act of 2017.
First, the seasoning period of five years since the opening of the Roth IRA account must have elapsed, and secondly a justification must exist such as retirement or disability.
The simplest justification is reaching 59.5 years of age, at which point qualified withdrawals may be made in any amount on any schedule.
Becoming disabled or being a "first time" home buyer can provide justification for limited qualified withdrawals.
