Hurricane relief. If you were affected by Hurricane Katrina, Rita, or Wilma, see chapter 4, Hurricane-Related Relief.

Roth IRA contribution limit. If contributions were made on your behalf only to Roth IRAs, your contribution limit for 2005 is generally the lesser of:

If you were age 50 or older in 2005 and contributions on your behalf were made only to Roth IRAs, your contribution limit for 2005 is generally the lesser of:

However, if your modified AGI is above a certain amount, your contribution limit may be reduced. For more information, see How Much Can Be Contributed? under Can You Contribute to a Roth IRA?, later.

Modified AGI for conversion purposes. Beginning in 2005, modified AGI for conversion purposes does not include minimum required distributions from qualified retirement plans, including IRAs. For more information, see Modified AGI later in this chapter.

Roth IRA contribution limit. If contributions are made on your behalf only to Roth IRAs, your contribution limit for 2006 will generally be the lesser of:

If you are age 50 or older in 2006 and contributions on your behalf are made only to Roth IRAs, your contribution limit for 2006 will generally be the lesser of:

However, if your modified AGI is above a certain amount, your contribution limit may be reduced. For more information, see How Much Can Be Contributed? under Can You Contribute to a Roth IRA?, later.

Deemed IRAs. For plan years beginning after 2002, a qualified employer plan (retirement plan) can maintain a separate account or annuity under the plan (a deemed IRA) to receive voluntary employee contributions. If the separate account or annuity otherwise meets the requirements of an IRA, it will be subject only to IRA rules. An employee's account can be treated as a traditional IRA or a Roth IRA. For this purpose, a “qualified employer plan” includes:

Regardless of your age, you may be able to establish and make nondeductible contributions to an individual retirement plan called a 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 below). It can be either an account or an annuity. Individual retirement accounts and annuities are described in chapter 1 under How Can a Traditional IRA Be Set Up.

To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is set up. 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 70½ and you can leave amounts in your Roth IRA as long as you live.

You can set up 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.

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

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

1. Subtract the following:

   1. Conversion income. This is any income resulting from the conversion of an IRA (other than a Roth IRA) to a Roth IRA. Conversions are discussed under Can You Move Amounts Into a Roth IRA, later.

   2. Minimum required distributions from qualified retirement plans, including IRAs, (for conversions only).

2. Add the following deductions and exclusions:

   1. Traditional IRA deduction,

   2. Student loan interest deduction,

   3. Tuition and fees deduction,

   4. Foreign earned income exclusion,

   5. Foreign housing exclusion or deduction,

   6. Exclusion of qualified bond interest shown on Form 8815,

   7. Exclusion of employer-provided adoption benefits shown on Form 8839, and

   8. Domestic production activities deduction from Form 1040, line 35, or Form 1040NR, line 33.

  You can use Worksheet 2-1 to figure your modified AGI.

  

Do not subtract conversion income or minimum required distributions from qualified retirement plans (including IRAs) when figuring your other AGI-based phaseouts and taxable income, such as your deduction for medical and dental expenses. Subtract them from AGI only for the purpose of figuring your modified AGI for Roth IRA purposes.

How Much Can Be Contributed?

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

Table 2-1. 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 $150,000	you can contribute up to $4,000 ($4,500 if you are age 50 or older; for 2006, $4,000 or $5,000, if you are age 50 or older) as explained under How Much Can Be Contributed.
	at least $150,000 but less than $160,000	the amount you can contribute is reduced as explained under Contribution limit reduced.
	$160,000 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 $4,000 ($4,500 if you are age 50 or older; for 2006, $4,000 or $5,000, if you are age 50 or older) as explained under How Much Can Be Contributed.
	more than zero (-0-) but less than $10,000	the amount you can contribute is reduced as explained under Contribution limit reduced.
	$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 $95,000	you can contribute up to $4,000 ($4,500 if you are age 50 or older; for 2006, $4,000 or $5,000, if you are age 50 or older) as explained under How Much Can Be Contributed.
	at least $95,000 but less than $110,000	the amount you can contribute is reduced as explained under Contribution limit reduced.
	$110,000 or more	you cannot contribute to a Roth IRA.

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

• $4,000 ($4,500 if you are age 50 or older; for 2006, $4,000 or $5,000, if you are age 50 or older), or

• 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.

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 (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs.

  This means that your contribution limit is the lesser of:

• $4,000 ($4,500 if you are age 50 or older; for 2006, $4,000 or $5,000, if you are age 50 or older) minus all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs, or

• 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.

  Simplified employee pensions (SEPs) are discussed in Publication 560. Savings incentive match plans for employees (SIMPLEs) are discussed in chapter 3.

Contribution limit reduced.   If your modified AGI is above a certain amount, your contribution limit is gradually reduced. Use Table 2-1 to determine if this reduction applies to you.

Figuring the reduction.   If the amount you can contribute must be reduced, figure your reduced contribution limit as follows.

1. Start with your modified AGI.

2. Subtract from the amount in (1):

   1. $150,000 if filing a joint return or qualifying widow(er),

   2. $-0- if married filing a separate return, and you lived with your spouse at any time during the year, or

   3. $95,000 for all other individuals.

3. Divide the result in (2) by $15,000 ($10,000 if filing a joint return, qualifying widow(er), or married filing a separate return and you lived with your spouse at any time during the year).

4. Multiply the maximum contribution limit (before reduction by this adjustment and before reduction for any contributions to traditional IRAs) by the result in (3).

5. Subtract the result in (4) from the maximum contribution limit before this reduction. The result is your reduced contribution limit.

Worksheet 2-1. 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 (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 or a minimum required distribution from a qualified retirement plan, including an IRA (if figuring MAGI for conversion purposes)			2.
3.	Subtract line 2 from line 1			3.
4.	Enter any traditional IRA deduction (Form 1040, line 32 or Form 1040A, line 17)			4.
5.	Enter any student loan interest deduction (Form 1040, line 33 or Form 1040A, line 18)			5.
6.	Enter any tuition and fees deduction (Form 1040, line 34 or Form 1040A, line 19)			6.
7.	Enter any foreign earned income and/or housing exclusion (Form 2555, line 43 or Form 2555-EZ, line 18)			7.
8.	Enter any foreign housing deduction (Form 2555, line 48)			8.
9.	Enter any exclusion of bond interest (Form 8815, line 14)			9.
10.	Enter any exclusion of employer-provided adoption benefits (Form 8839, line 30)			10.
11.	Enter any domestic production activities deduction (Form 1040, line 35 or Form 1040NR, line 33			11.
12.	Add the amounts on lines 3 through 11.			12.
13.	Enter: $160,000 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 $110,000 for all others			13.
14.	Is the amount on line 12 more than the amount on line 13? If yes, see the note below. If no, the amount on line 12 is your modified adjusted gross income 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. When figuring your modified AGI for conversion purposes, refigure your AGI without taking into account any income from conversions or minimum required distributions from qualified retirement plans, including IRAs. (If you receive social security benefits, use Worksheet 1 in Appendix B to refigure your AGI.) Then go to list item 2) above under Modified AGI or line 4 above in Worksheet 2-1 to refigure your modified AGI. If you do not have other income or loss items subject to AGI-based phaseouts, your modified adjusted gross income for Roth IRA purposes is the amount on line 12 above.

  You can use Worksheet 2-2 to figure the reduction.

Worksheet 2-2. Determining Your Reduced Roth IRA Contribution Limit

Before using this worksheet, check Table 2-1 to determine whether or not your Roth IRA contribution limit is reduced. If it is, use this worksheet to determine how much it is reduced.

1.	Enter your modified AGI for Roth IRA purposes	1.
2.	Enter: $150,000 if filing a joint return or qualifying widow(er) $-0- if married filing a separate return and you lived with your spouse at any time in 2005 $95,000 for all others	2.
3.	Subtract line 2 from line 1	3.
4.	Enter: $10,000 if filing a joint return or qualifying widow(er) or married filing a separate return and you lived with your spouse at any time during the year $15,000 for all others	4.
5.	Divide line 3 by line 4 and enter the result as a decimal (rounded to at least three places). If the result is 1.000 or more, enter 1.000	5.
6.	Enter the lesser of: $4,000 ($4,500 if you are age 50 or older; for 2006, $4,000 or $5,000, if you are age 50 or older), or Your taxable compensation	6.
7.	Multiply line 5 by line 6	7.
8.	Subtract line 7 from line 6. Round the result up to the nearest $10. If the result is less than $200, enter $200	8.
9.	Enter contributions for the year to other IRAs	9.
10.	Subtract line 9 from line 6	10.
11.	Enter the lesser of line 8 or line 10. This is your reduced Roth IRA contribution limit	11.

  

Round your reduced contribution limit up to the nearest $10. If your reduced contribution limit is more than $0, but less than $200, increase the limit to $200.

Example.

You are a 45-year-old, single individual with taxable compensation of $113,000. You want to make the maximum allowable contribution to your Roth IRA for 2005. Your modified AGI for 2005 is $100,000. You have not contributed to any traditional IRA, so the maximum contribution limit before the modified AGI reduction is $4,000. Using the steps described above, you figure your reduced Roth IRA contribution of $2,670 as shown on the following worksheet.

Worksheet 2-2. Example—Illustrated

Before using this worksheet, check Table 2-1 to determine whether or not your Roth IRA contribution limit is reduced. If it is, use this worksheet to determine how much it is reduced.

1.	Enter your modified AGI for Roth IRA purposes	1.	100,000
2.	Enter: $150,000 if filing a joint return or qualifying widow(er) $0 if married filing a separate return and you lived with your spouse at any time in 2005 $95,000 for all others	2.	95,000
3.	Subtract line 2 from line 1	3.	5,000
4.	Enter: $10,000 if filing a joint return or qualifying widow(er) or married filing a separate return and you lived with your spouse at any time during the year $15,000 for all others	4.	15,000
5.	Divide line 3 by line 4 and enter the result as a decimal (rounded to at least three places). If the result is 1.000 or more, enter 1.00	5.	.333
6.	Enter the lesser of: $4,000 ($4,500 if you are age 50 or older; for 2006, $4,000 or $5,000, if you are age 50 or older), or Your taxable compensation	6.	4,000
7.	Multiply line 5 by line 6	7.	1332
8.	Subtract line 7 from line 6. Round the result up to the nearest $10. If the result is less than $200, enter $200	8.	2,670
9.	Enter contributions for the year to other IRAs	9.	0
10.	Subtract line 9 from line 6	10.	4,000
11.	Enter the lesser of line 8 or line 10. This is your reduced Roth IRA contribution limit	11.	2,670

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 2005 by the due date (not including extensions) for filing your 2005 tax return. This means that most people can make contributions for 2005 by April 17, 2006.

You may be able to convert amounts from either a traditional, SEP, or SIMPLE IRA into 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 one Roth IRA to another Roth IRA.

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.

What Are Qualified Distributions?

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

1. 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

2. The payment or distribution is:

   1. Made on or after the date you reach age 59½,

   2. Made because you are disabled,

   3. Made to a beneficiary or to your estate after your death, or

   4. One that meets the requirements listed under First home under Exceptions in chapter 1 (up to a $10,000 lifetime limit).

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Is Roth Distributions a Qualified Distribution?

If you were affected by Hurricane Katrina, Rita, or Wilma, see Chapter 4, Hurricane-Related Relief.

Additional Tax on Early Distributions

If you receive a distribution that is not a qualified distribution, you may have to pay the 10% additional tax on early distributions as explained in the following paragraphs.

Distributions of conversion 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 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 (the conversion contribution) that you had to include in income. A separate 5-year period applies to each conversion. See Ordering Rules for Distributions, later, to determine the amount, if any, of the distribution that is attributable to the part of the conversion contribution that you had to include in income.

  The 5-year period used for determining whether the 10% early distribution tax applies to a distribution from a conversion contribution is separately determined for each conversion, and is not necessarily the same as the 5-year period used for determining whether a distribution is a qualified distribution. See What Are Qualified Distributions, earlier.

  For example, if a calendar-year taxpayer makes a conversion contribution on February 25, 2000, and makes a regular contribution for 1999 on the same date, the 5-year period for the conversion begins January 1, 2000, while the 5-year period for the regular contribution begins on January 1, 1999.

  Unless one of the exceptions listed later applies, you must pay the additional tax on the portion of the distribution attributable to the part of the conversion contribution that you had to include in income because of the conversion.

  You must pay the 10% additional tax in the year of the distribution, even if you had included the conversion contribution in an earlier year. You also must pay the additional tax on any portion of the distribution attributable to earnings on contributions.

Other early distributions.   Unless one of the exceptions listed below applies, you must pay the 10% additional tax on the taxable part of any distributions that are not qualified distributions.

Exceptions.   You may not have to pay the 10% additional tax in the following situations.

• You have reached age 59½.

• You are disabled.

• You are the beneficiary of a deceased IRA owner.

• You use the distribution to pay certain qualified first-time homebuyer amounts.

• The distributions are part of a series of substantially equal payments.

• You have significant unreimbursed medical expenses.

• You are paying medical insurance premiums after losing your job.

• The distributions are not more than your qualified higher education expenses.

• The distribution is due to an IRS levy of the qualified plan.

Most of these exceptions are discussed earlier in chapter 1 under Early Distributions.

If you were affected by Hurricane Katrina, Rita, or Wilma, see Chapter 4, Hurricane-Related Relief.

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 as explained later under Distributions After Owner's Death.