Who can make contributions to a Roth IRA? Any taxpayer who has earned income can establish a Roth IRA and make contributions to that Roth IRA. The age of the taxpayer is not relevant; a 10-year-old who has earned income can make a contribution as well as a 100- year-old with earned income. Social Security, pension or IRA distributions, interest and dividends do not count as earned income for this purpose, although they are included in gross income for purposes of determining Roth IRA eligibility. Contributions may be limited by the amount of adjusted gross income that the taxpayer has in the year of the contribution.

For conversions from a regular IRA to a Roth IRA, there is no need for you to have earned income. However, if your (or you and your spouse) have adjusted gross income of greater than $100,000 in the year of the conversion, then a conversion cannot be made. If you are married and filing a separate tax return, you cannot make a Roth IRA conversion, unless you and your spouse have not lived together for the entire year.

When can I establish a Roth IRA? Roth IRAs can be established anytime after January 1, 1998.

Can I make a contribution to a Roth IRA if I am retired? In general, you cannot make a contribution to a Roth IRA (other than a conversion contribution) if you are retired, since the amount of the contribution is limited to earned income. Distributions from a retirement plan or a 401(k) plan and Social Security benefits are not considered earned income for this purpose. However, if you had a job and earned money from that job which you pay Social Security taxes on, then you could make a Roth IRA contribution, provided that your adjusted gross income, which would include your pension and 401(k) plan distributions and the taxable amount of Social Security benefits did not exceed the dollar limitation. Remember that Roth IRAs were enacted to promote new retirement savings and are not intended to be used as a method to further defer income received during retirement.

Can I make a contribution to a Roth IRA if during the year I also made a conversion to a Roth IRA? Yes, you can. However, since the amount of the Roth IRA conversion is included in your income during that year, your adjusted gross income will be increased. This may limit the availability to make contributions to the Roth IRA in that year, because of the income limitations on who can contribute to a Roth IRA.

Can I make a contribution to a Roth IRA in the same year that I contribute to a 401(k) plan or if I am a participant in another employer pension or profit sharing plan? Yes, you can. There are no limitations on making Roth IRA contributions while an active participant in a 401(k) plan or another employer pension or profit sharing plan like there are for regular IRAs.

Can I make a contribution to a Roth IRA in the same year that I contribute to a regular IRA? Yes, you can. However, the amount that you can contribute to either of these plans will be reduced by the amount contributed to the other plan. So, if you contributed $500 to a regular IRA (regardless of whether the contribution was tax deductible), then the maximum amount that you could contribute to a Roth IRA would be $1,500, subject, of course, the adjusted gross income limits on contributions.

What if I find out that my income exceeds the limits for making a Roth IRA conversion? Recent tax law changes provide that you can reverse your Roth IRA contributions (including conversions) and have the amount (plus attributable earnings) rolled back into your regular IRA without penalty. This reversal must occur by the due date (with extensions) of your tax return for the year in which the conversion is made. This will mean that you will be able to know what your adjusted gross income for the year is and whether you are eligible to convert. For example, if after the end of the year you discover your adjusted gross income is above $100,000, then the amount converted into the Roth IRA and any earnings on that amount could be rolled back into your regular IRA.

If my spouse does not have earned income, can he or she contribute to a Roth IRA? Yes, your spouse can contribute to a Roth IRA, as long as the contribution that the both of you make does not exceed the lesser of your joint earnings or $4,000. Of course, the income limitations on making Roth IRA contributions would apply.

Can I make a conversion to a Roth IRA from a 401(k) plan? No, you cannot make a direct conversion from a 401(k) plan to a Roth IRA. However, if you can take a distribution from your 401(k) plan and roll that distribution over to a regular IRA, you can then convert the regular IRA to a Roth IRA, provided you meet the income limits on conversions. Remember that you generally cannot take distributions from a 401(k) plan while you are still employed by the plan sponsor or an affiliated company, so those amounts in your 401(k) would not be available for rollover while you are still working for the 401(k) plan sponsor.

If I make a conversion to a Roth IRA, can I take a distribution from the Roth IRA within five years? Yes, you can take a distribution within the first five years of the conversion, however, there may be adverse tax consequences for taking the distribution. During the five years from year in which the conversion was made, a distribution of the conversion will be subject to a ten percent additional tax if the distribution would have been subject to the additional tax if the distribution was taken directly from a regular IRA. That means that if you are over age 59 1/2, then the distribution will not be subject to the ten percent additional tax. Other exceptions to the 10% additional tax are if the distribution is used for certain educational expenses, medical expenses exceeding 7.5 percent of adjusted gross income, medical insurance premiums while unemployed (not subject to the 7.5 percent limit), first time home purchase (limited to $10,000) and one of annual payments over your lifetime or the lifetime of you and your designated beneficiary.

Distribution of the amount of earnings on the converted amount within the first five year period from the date your first Roth IRA was established (not the date of the conversion) could also be subject to income tax. In addition, if you are not over age 59 1/2 or the distribution is not for one of the reasons outlined above, the distribution will also be subject to the ten percent additional tax.

If I make a Roth IRA conversion, will I have to pay estimated income tax that year? At what tax rate is the conversion amount taxed? The change to the Internal Revenue Code adding the Roth IRA did not change the estimated tax rules in the Code. Consequently, there may be estimated tax payments which will need to be made if the amount of the Roth IRA conversion is large as compared to your usual income. It is important to consult your tax advisor to determine whether estimated tax is due during the year.

There is no special tax rate for the amounts included in income due to the conversion. These amounts are added to gross income for the year in which the conversion is made or ratably over four years if the conversion is made in 1998. The addition of the conversion amount to gross income may result in income being taxed at a higher marginal tax rate, reduction of certain deductions which are limited by the taxpayer's adjusted gross income and taxation of a higher portion of Social Security. Consequently, the conversion to a Roth IRA may not be the right decision for all taxpayers.

I am over age 70 1/2 and am receiving required minimum distributions from my IRA. Can I convert this IRA into a Roth IRA? As long as your adjusted gross income is less than $100,000 and you are not married filing a separate tax return, you are permitted to convert your regular IRA into a Roth IRA. Your required minimum distributions from your IRA are included in your adjusted gross income, so this may limit those who can convert if the required minimum distributions bring your adjusted gross income above $100,000. In addition, the required minimum distributions you receive from your IRA cannot be converted into a Roth IRA. Effective in 2005, the required minimum distribution will not be counted when determining whether the $100,000 adjusted gross income is met.

Do I have to establish separate Roth IRA accounts to keep my conversion amount separate from my contributions. According to a newly enacted tax law, there is no requirement that separate Roth IRA accounts be established for conversion Roth IRA funds and contribution Roth IRA funds. However, the custodian holding your Roth IRA account may determine that for administrative purposes it will not commingle both types of funds into the same Roth IRA account.

When must I start receiving distributions from my Roth IRA? Unlike regular IRAs, there is no required age when you must start receiving distributions from your Roth IRA.

After I die, must distributions be made from my Roth IRA? Yes, distributions must be made from your Roth IRA after you die. When these distributions must start depends on whether you have designated a beneficiary for your Roth IRA. If you have designated a beneficiary, then distributions must begin to such beneficiary starting at least one year from the date of your death. Annual distributions must be made in an amount not less than the Roth IRA account balance multiplied by a fraction with one as the numerator and your beneficiary's life expectancy as the denominator. If you have not designated a beneficiary, distributions must be completed within five years.

After I die, will assets remaining in my Roth IRA be subject to estate tax? The change to the Internal Revenue Code adding the Roth IRA did not change the estate tax rules. Consequently, the amount in your Roth IRA when you die may be subject to estate tax if your estate, including the remaining amount in the Roth IRA, is significant. If you believe that your estate may be that significant, you should consult your tax advisor.

Are the assets in my Roth IRA subject to my creditors in event of bankruptcy? Generally, whether an asset is subject to creditors in the event of bankruptcy will depend on state bankruptcy law. Most states, including Delaware, have specifically excluded IRAs, including Roth IRAs, from being subject to creditors in the event of bankruptcy. You should check to determine whether your state has exempted Roth IRAs from the claims of creditors.

Are distributions from my Roth IRA not taxable by a state? How about the earnings on Roth IRA? Whether Roth IRA distributions and Roth IRA earnings are taxable by a state depends on the state's tax laws. Many states, like Delaware, have tax laws that follow the federal tax law and make adjustments to the federal law. In those states, Roth IRA distributions and Roth IRA earnings would not be taxed by the state since they were not taxed under the federal tax laws. Other states have set out their own rules on what is taxable or not. If you are in one of those states you should determine whether the Roth IRA is completely exempt from taxation. We are not aware of any who are subjecting Roth IRAs to taxation, but we are aware that some state legislatures were trying to determine whether to tax a Roth IRA.