Publication 17 - Your Federal Income Tax (For Individuals)

Publication 17

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Regardless of your age, you may be able to establish and make nondeductible contributions to a retirement plan called a Roth IRA.

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Contributions Not Reported

You do not report Roth IRA contributions on your return.

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Roth IRA

A Roth IRA is an individual retirement plan that, except as explained in this chapter, is subject to the rules that apply to a traditional IRA (defined earlier). It can be either an account or an annuity. Individual retirement accounts and annuities are described in Publication 590.

To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is opened. A deemed IRA can be a Roth IRA, but neither a SEP IRA nor a SIMPLE IRA can be designated as a Roth IRA.

Unlike a traditional IRA, you cannot deduct contributions to a Roth IRA. But, if you satisfy the requirements, qualified distributions (discussed later) are tax free. Contributions can be made to your Roth IRA after you reach age 701/2 and you can leave amounts in your Roth IRA as long as you live.

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When Can a Roth IRA be Opened?

You can open a Roth IRA at any time. However, the time for making contributions for any year is limited. See When Can You Make Contributions, later, under Can You Contribute to a Roth IRA.

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Can You Contribute to a Roth IRA?

Generally, you can contribute to a Roth IRA if you have taxable compensation (defined later) and your modified AGI (defined later) is less than:

$183,000 for married filing jointly or qualifying widow(er),
$125,000 for single, head of household, or married filing separately and you did not live with your spouse at any time during the year, or
$10,000 for married filing separately and you lived with your spouse at any time during the year.

You may be eligible to claim a credit for contributions to your Roth IRA. For more information, see chapter 36.

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Is there an Age Limit for Contributions?

Contributions can be made to your Roth IRA regardless of your age.

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Can You Contribute to a Roth IRA for Your Spouse?

You can contribute to a Roth IRA for your spouse provided the contributions satisfy the spousal IRA limit (discussed in How Much Can Be Contributed? under Traditional IRAs), you file jointly, and your modified AGI is less than $183,000.

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Compensation, Wage, Salary

Compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts received for providing personal services. It also includes commissions, self-employment income, nontaxable combat pay, military differential pay, and taxable alimony and separate maintenance payments.

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Modified Adjusted Gross Income (MAGI) (AGI)

Your modified AGI for Roth IRA purposes is your adjusted gross income (AGI) as shown on your return modified as follows.

Subtract the following.
1. Roth IRA conversions included on Form 1040, line 15b, or Form 1040A, line 11b.
2. Roth IRA rollovers from qualified retirement plans included on Form 1040, line 16b, or Form 1040A, line 12b.
Add the following deductions and exclusions:
1. Traditional IRA deduction,
2. Student loan interest deduction,
3. Tuition and fees deduction,
4. Domestic production activities deduction,
5. Foreign earned income exclusion,
6. Foreign housing exclusion or deduction,
7. Exclusion of qualified savings bond interest shown on Form 8815, and
8. Exclusion of employer-provided adoption benefits shown on Form 8839.

You can use Worksheet 17-2 to figure your modified AGI.

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Worksheet 17-2. Modified Adjusted Gross Income for Roth IRA Purposes

Use this worksheet to figure your modified adjusted gross income for Roth IRA purposes.

1.	Enter your adjusted gross income from Form 1040, line 38, or Form 1040A, line 22		1.
2.	Enter any income resulting from the conversion of an IRA (other than a Roth IRA) to a Roth IRA and a rollover from a qualified retirement plan to a Roth IRA		2.
3.	Subtract line 2 from line 1		3.
4.	Enter any traditional IRA deduction from Form 1040, line 32, or Form 1040A, line 17		4.
5.	Enter any student loan interest deduction from Form 1040, line 33, or Form 1040A, line 18		5.
6.	Enter any tuition and fees deduction from Form 1040, line 34, or Form 1040A, line 19		6.
7.	Enter any domestic production activities deduction from Form 1040, line 35		7.
8.	Enter any foreign earned income and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18		8.
9.	Enter any foreign housing deduction from Form 2555, line 50		9.
10.	Enter any excludable savings bond interest from Form 8815, line 14		10.
11.	Enter any excluded employer-provided adoption benefits from Form 8839, line 24		11.
12.	Add the amounts on lines 3 through 11		12.
13.	Enter: • $183,000 if married filing jointly or qualifying widow(er) • $10,000 if married filing separately and you lived with your spouse at any time during the year • $125,000 for all others		13.
		Is the amount on line 12 more than the amount on line 13? If yes, then see the *Note* below. If no, then the amount on line 12 is your *modified AGI* for Roth IRA purposes.
	*Note.* If the amount on line 12 is more than the amount on line 13 and you have other income or loss items, such as social security income or passive activity losses, that are subject to AGI-based phaseouts, you can refigure your AGI solely for the purpose of figuring your modified AGI for Roth IRA purposes. (If you receive social security benefits, use Worksheet 1 in Appendix B of Publication 590 to refigure your AGI.) Then go to list item (2) under Modified AGI or line 3 above in this Worksheet 17-2 to refigure your modified AGI. If you do not have other income or loss items subject to AGI-based phaseouts, your modified AGI for Roth IRA purposes is the amount on line 12.

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The contribution limit for Roth IRAs generally depends on whether contributions are made only to Roth IRAs or to both traditional IRAs and Roth IRAs.

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Roth IRA

If contributions are made only to Roth IRAs, your contribution limit generally is the lesser of the following amounts.

$5,000 ($6,000 if you are 50 or older in 2012).
Your taxable compensation.

However, if your modified AGI is above a certain amount, your contribution limit may be reduced, as explained later under Contribution limit reduced.

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Roth IRAs and Traditional IRAs

If contributions are made to both Roth IRAs and traditional IRAs established for your benefit, your contribution limit for Roth IRAs generally is the same as your limit would be if contributions were made only to Roth IRAs, but then reduced by all contributions for the year to all IRAs other than Roth IRAs. Employer contributions under a SEP or SIMPLE IRA plan do not affect this limit.

This means that your contribution limit is generally the lesser of the following amounts.

$5,000 ($6,000 if you are 50 or older in 2012) minus all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs.
Your taxable compensation minus all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs.

However, if your modified AGI is above a certain amount, your contribution limit may be reduced, as explained next under Contribution limit reduced.

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Contribution Limit Reduced

If your modified AGI is above a certain amount, your contribution limit is gradually reduced. Use Table 17-3 to determine if this reduction applies to you.

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Table 17-3. Effect of Modified AGI on Roth IRA Contribution

This table shows whether your contribution to a Roth IRA is affected by the amount of your modified adjusted gross income (modified AGI).

IF you have taxable compensation and your filing status is...	AND your modified AGI is...	THEN...
married filing jointly, or qualifying widow(er)	less than $173,000	you can contribute up to $5,000 ($6,000 if you are 50 or older in 2012).
	at least $173,000 but less than $183,000	the amount you can contribute is reduced as explained under Contribution limit reduced in chapter 2 of Publication 590.
	$183,000 or more	you cannot contribute to a Roth IRA.
married filing separately and you lived with your spouse at any time during the year	zero (-0-)	you can contribute up to $5,000 ($6,000 if you are 50 or older in 2012).
	more than zero (-0-) but less than $10,000	the amount you can contribute is reduced as explained under Contribution limit reduced in chapter 2 of Publication 590.
	$10,000 or more	you cannot contribute to a Roth IRA.
single, head of household, or married filing separately and you did not live with your spouse at any time during the year	less than $110,000	you can contribute up to $5,000 ($6,000 if you are 50 or older in 2012).
	at least $110,000 but less than $125,000	the amount you can contribute is reduced as explained under Contribution limit reduced in chapter 2 of Publication 590.
	$125,000 or more	you cannot contribute to a Roth IRA.

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If the amount you can contribute to your Roth IRA is reduced, see Publication 590 for how to figure the reduction.

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When Can You Make Contributions?

You can make contributions to a Roth IRA for a year at any time during the year or by the due date of your return for that year (not including extensions).

You can make contributions for 2012 by the due date (not including extensions) for filing your 2012 tax return.

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What if You Contribute Too Much?

A 6% excise tax applies to any excess contribution to a Roth IRA.

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Penalty, Excess Contributions

These are the contributions to your Roth IRAs for a year that equal the total of:

Amounts contributed for the tax year to your Roth IRAs (other than amounts properly and timely rolled over from a Roth IRA or properly converted from a traditional IRA or rolled over from a qualified retirement plan, as described later) that are more than your contribution limit for the year, plus
Any excess contributions for the preceding year, reduced by the total of:
1. Any distributions out of your Roth IRAs for the year, plus
2. Your contribution limit for the year minus your contributions to all your IRAs for the year.

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For purposes of determining excess contributions, any contribution that is withdrawn on or before the due date (including extensions) for filing your tax return for the year is treated as an amount not contributed. This treatment applies only if any earnings on the contributions are also withdrawn. The earnings are considered to have been earned and received in the year the excess contribution was made.

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Applying Excess Contributions

If contributions to your Roth IRA for a year were more than the limit, you can apply the excess contribution in one year to a later year if the contributions for that later year are less than the maximum allowed for that year.

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Can You Move Amounts into a Roth IRA?

You may be able to convert amounts from either a traditional, SEP, or SIMPLE IRA into a Roth IRA. You may be able to roll amounts over from a qualified retirement plan to a Roth IRA. You may be able to recharacterize contributions made to one IRA as having been made directly to a different IRA. You can roll amounts over from a designated Roth account or from one Roth IRA to another Roth IRA.

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Conversions

You can convert a traditional IRA to a Roth IRA. The conversion is treated as a rollover, regardless of the conversion method used. Most of the rules for rollovers, described earlier under Rollover From One IRA Into Another under Traditional IRAs, apply to these rollovers. However, the 1-year waiting period does not apply.

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Conversion Methods

You can convert amounts from a traditional IRA to a Roth IRA in any of the following ways.

Rollover. You can receive a distribution from a traditional IRA and roll it over (contribute it) to a Roth IRA within 60 days after the distribution.
Trustee-to-trustee transfer. You can direct the trustee of the traditional IRA to transfer an amount from the traditional IRA to the trustee of the Roth IRA.
Same trustee transfer. If the trustee of the traditional IRA also maintains the Roth IRA, you can direct the trustee to transfer an amount from the traditional IRA to the Roth IRA.

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Conversions made with the same trustee can be made by redesignating the traditional IRA as a Roth IRA, rather than opening a new account or issuing a new contract.

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For any conversions from a traditional, SEP, or SIMPLE IRA to a Roth IRA in 2010, any amounts required to be included in income are generally included in income in equal amounts in 2011 and 2012 unless you elected to include the entire amount in income in 2010. You may be required to include an amount other than half of a 2010 conversion from a traditional, SEP, or SIMPLE IRA to a Roth IRA in income in 2012 if you also took a Roth IRA distribution in 2010 or 2011. See Publication 590 for more information on the amount to include in income in 2012 from a 2010 conversion to a Roth IRA.

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Rollover from a Qualified Retirement Plan into a Roth IRA

You can roll over into a Roth IRA all or part of an eligible rollover distribution you receive from your (or your deceased spouse's):

Employer's qualified pension, profit-sharing, or stock bonus plan;
Annuity plan;
Tax-sheltered annuity plan (section 403(b) plan); or
Governmental deferred compensation plan (section 457 plan).

Any amount rolled over is subject to the same rules as those for converting a traditional IRA into a Roth IRA. Also, the rollover contribution must meet the rollover requirements that apply to the specific type of retirement plan.

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You must include in your gross income distributions from a qualified retirement plan that you would have had to include in income if you had not rolled them over into a Roth IRA. You do not include in gross income any part of a distribution from a qualified retirement plan that is a return of contributions (after-tax contributions) to the plan that were taxable to you when paid.

These amounts are normally included in income on your return for the year you rolled them over from the employer plan to a Roth IRA. For 2010 rollovers special rules apply. See Special rules for 2010 rollovers from qualified retirement plans to Roth IRAs next.

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For any rollovers from qualified retirement plans to a Roth IRA in 2010, any amounts that are required to be included in income are generally included in income in equal amounts in 2011 and 2012 unless you elected to include the entire amount in income in 2010. You may be required to include an amount other than half of a 2010 rollover from a qualified employer plan to a Roth IRA in income in 2012 if you also took a Roth IRA distribution in 2010 or 2011. See Publication 590 for more information on the amount to include in income in 2012 from a 2010 rollover.

If you must include any amount in your gross income, you may have to increase your withholding or make estimated tax payments. See Publication 505, Tax Withholding and Estimated Tax.

For more information, see Rollover From Employer's Plan Into a Roth IRA in chapter 2 of Publication 590.

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Converting from a SIMPLE IRA

Generally, you can convert an amount in your SIMPLE IRA to a Roth IRA under the same rules explained earlier under Converting From Any Traditional IRA to a Roth IRA under Traditional IRAs.

However, you cannot convert any amount distributed from the SIMPLE IRA during the 2-year period beginning on the date you first participated in any SIMPLE IRA plan maintained by your employer.

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For more detailed information on conversions, see Publication 590.

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Roth IRA, Rollover

You can withdraw, tax free, all or part of the assets from one Roth IRA if you contribute them within 60 days to another Roth IRA. Most of the rules for rollovers, explained earlier under Rollover From One IRA Into Another under Traditional IRAs, apply to these rollovers.

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Rollover from Designated Roth Account

A rollover from a designated Roth account can only be made to another designated Roth account or to a Roth IRA. For more information about designated Roth accounts, see chapter 10.

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Distributions from IRAs

You do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s). You also do not include distributions from your Roth IRA that you roll over tax free into another Roth IRA. You may have to include part of other distributions in your income. See Ordering rules for distributions, later.

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Retirement Plan, Distribution

A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements.

It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and
The payment or distribution is:
1. Made on or after the date you reach age 591/2,
2. Made because you are disabled,
3. Made to a beneficiary or to your estate after your death, or
4. To pay up to $10,000 (lifetime limit) of certain qualified first-time homebuyer amounts. See Publication 590 for more information.

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Additional Tax on Distributions of Conversion and Certain Rollover Contributions Within 5-year Period

If, within the 5-year period starting with the first day of your tax year in which you convert an amount from a traditional IRA or rollover an amount from a qualified retirement plan to a Roth IRA, you take a distribution from a Roth IRA, you may have to pay the 10% additional tax on early distributions. You generally must pay the 10% additional tax on any amount attributable to the part of the amount converted or rolled over (the conversion or rollover contribution) that you had to include in income. A separate 5-year period applies to each conversion and rollover. See Ordering rules for distributions, later, to determine the amount, if any, of the distribution that is attributable to the part of the conversion or rollover contribution that you had to include in income.

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Additional Tax on Other Early Distributions

Unless an exception applies, you must pay the 10% additional tax on the taxable part of any distributions that are not qualified distributions. See Publication 590 for more information.

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Ordering Rules for Distributions

If you receive a distribution from your Roth IRA that is not a qualified distribution, part of it may be taxable. There is a set order in which contributions (including conversion contributions and rollover contributions from qualified retirement plans) and earnings are considered to be distributed from your Roth IRA. Regular contributions are distributed first. See Publication 590 for more information.

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Penalty, Early Distributions from IRAs and Plans

You are not required to take distributions from your Roth IRA at any age. The minimum distribution rules that apply to traditional IRAs do not apply to Roth IRAs while the owner is alive. However, after the death of a Roth IRA owner, certain of the minimum distribution rules that apply to traditional IRAs also apply to Roth IRAs.

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For more detailed information on Roth IRAs, see Publication 590.

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Roth IRAs(p128)

Contributions not reported.(p128)

What Is a Roth IRA?(p128)

When Can a Roth IRA Be Opened?(p128)

Can You Contribute to a Roth IRA?(p128)

Is there an age limit for contributions?(p128)

Can you contribute to a Roth IRA for your spouse?(p128)

Compensation.(p128)

Modified AGI.(p128)

How Much Can Be Contributed?(p128)

Roth IRAs only.(p128)

Roth IRAs and traditional IRAs.(p128)

Contribution limit reduced.(p130)

When Can You Make Contributions?(p130)

What if You Contribute Too Much?(p130)

Excess contributions.(p130)

Applying excess contributions.(p130)

Can You Move Amounts Into a Roth IRA?(p130)

Conversions(p130)

Conversion methods.(p130)

Rollover from a qualified retirement plan into a Roth IRA.(p130)

Converting from a SIMPLE IRA.(p130)

More information.(p130)

Rollover From a Roth IRA(p131)

Rollover from designated Roth account.(p131)

Are Distributions Taxable?(p131)

What are qualified distributions?(p131)

Additional tax on distributions of conversion and certain rollover contributions within 5-year period.(p131)

Additional tax on other early distributions.(p131)

Ordering rules for distributions.(p131)

Must you withdraw or use Roth IRA assets?(p131)

More information.(p131)