While it’s still a largely under-appreciated retirement savings opportunity, more savers are discovering the long term value potential that’s unique to the Roth IRA account structure. The rules and regulations regarding Roth IRAs (like all retirement accounts) tend to change over time, so let’s take a look at what’s new for Roth IRAs in 2014.
IRS Eligibility Rules.
The only change that we have to the IRS Rules for Roth IRAs so far this year is that the eligibility rules have raised the income level at which an individual can make contributions. Single taxpayers with a modified adjusted gross income of up to $114,000 can make a full contribution (which amounts to $5,500 for 2014), while individuals with an income between $114,000 and $129,000 can make a partial contribution. These 2014 income levels represent an increase of $2,000 over 2013.
Married taxpayers can make full contributions to a Roth IRA if their modified adjusted gross income is under $181,000. Those taxpayers can make a partial contribution to their Roth IRA if their income is between $181,000 and $191,000. These income threshold levels are $3,000 higher than the income levels that were in place for 2013.
While the relaxed rules on being able to convert a traditional IRA to a Roth IRA have been around for a couple of years now, not everyone is entirely familiar with what this means – or how valuable it could be. Individuals who hold Traditional IRAs can now convert those accounts into Roth IRAs regardless of their income level.
Converting your IRA in this way will trigger an immediate tax liability; the full amount of your conversion will be treated as taxable income during the year in which you convert. However, after this initial tax hit you’ll have a Roth IRA, which means that future retirement withdrawals will be completely tax-free (withdrawals from a traditional IRA are taxable), your ability to pass down your account to your spouse or heirs in the tax preferred manner is improved, you’ll be subject to the rules on required minimum distributions, and you’ll be able to continue contributing to your account even after age 70½.
The Self-Directed IRA Option.
One new thing that you may wish to explore in 2014 is setting up a new Roth IRA with a custodian – such as Quest Trust Company – that offers self-directed accounts. A self-directed Roth IRA can provide you with entirely new opportunities and investments for your retirement funds. Self-directed Roth IRAs can be used to invest in things such as real estate, precious metals, mortgage instruments, and even private equity.
The IRS rules permit you to have multiple IRAs, so setting up a new self-directed Roth IRA doesn’t need to distract you from any other IRAs you may have. Of course, you can also consider rolling over or converting all of your existing accounts into a single self-directed Roth IRA, in order to give you the greatest number of investment options.