The new Roth IRA adds new and exciting opportunities for investors as they plan for their retirement. As with all investments, we recommend that you enlist the expertise of a qualified financial advisor before making your investment decisions. The money you contribute to a Roth IRA is after-tax dollars. In other words, unlike a traditional IRA, you cannot deduct your contributions to a Roth IRA from your taxes. The good news is the plan allows the money you contribute to grow tax-free.
Distributions are tax free if made for a qualified purpose and satisfy the five-year holding rule.
This five year period begins the first tax year the contribution is made. Income thresholds do exist, which may reduce the amount you can contribute. This type of transaction will be treated as a taxable event. In 1998 only, the taxes due for this transaction can be spread over the next four years. Any conversion occurring after 1998 will be subject to full taxation during that tax year.