Roth IRA Contributions

If you are age 50 or older at any time during the calendar year, you will be allowed to invest an additional $1,000, and there is no upper age limit.

Yes, assuming that you income qualify (see Roth IRA Eligibility) to make a Roth IRA contribution you can contribute to both.  However, please note you have one combined IRA contribution limit of $5,500 if under age 50, and $6,500 if over age 50.   Contributions may or may not be tax deductible ¹ when made to a traditional IRA. (See our table under "IRA Eligibility," which outlines traditional IRA contribution tax-deduction parameters.)

Many taxpayers earn income above federally imposed thresholds and cannot make contributory Roth IRA contributions.  Therefore, the only way that a Roth IRA is possible for these folks is by converting a traditional IRA.  Accumulating assets in an IRA positions you to potentially convert your Lord Abbett IRA account to a Roth IRA. (See "Roth Conversion Resource Center") This means exchanging the traditional IRA for a Roth IRA, paying taxes on all pretax dollars converted. 

¹ An item or expense, such as an IRA contribution, which, when subtracted from adjusted gross income, reduces the amount of income subject to tax.

You can make your Roth IRA contributions as soon as your Lord Abbett Roth IRA account is established.  (Click here to connect with Lord Abbett's writeable Roth IRA application.) Contributions may be made at any time during the calendar year or by the tax filing due date for that year, not including extensions. For most people, this means contributions must be made by April 15.

If not withdrawn by the tax filing due date (April 15), a 6% excise tax may apply to contributions in excess of the permitted amount.

If you file for an extension by the due date of your federal tax return, you receive a six month extension to correct an excess contribution.

Roth IRA contribution earnings grow tax deferred until withdrawn. If you are age 59½ or older and the account has been in existence for five tax years, all withdrawals are tax free. It may be to your advantage to accumulate tax-sheltered ¹ funds allowing the full amount invested and earnings to potentially compound on a tax-deferred ² and potentially tax-free basis.

Many taxpayers earn income above federally imposed thresholds and cannot make contributory Roth IRA contributions.  (See our table on the Roth IRA Eligibility page.)  Therefore, the only way that a Roth IRA is possible for these folks is by converting a traditional IRA.  Accumulating assets in an IRA positions you to potentially convert your Lord Abbett IRA account to a Roth IRA. (See "Roth Conversion Resource Center.") This means exchanging the traditional IRA for a Roth IRA, paying taxes on all pretax dollars converted. 

However, please understand that the rules do not allow you to convert nondeductible dollars only. What's taxable and what's not is based on a formula (unless it's a full conversion) that multiplies the dollars converted by the nondeductible dollars over the value of all IRAs, including the amount converted, at the end of the year in which the conversion occurs.

Here's an example:

Aftertax dollars in all non-Roth IRA accounts, including rollovers, SEPs,³ and SIMPLE IRAs⁴ is $10,000, and the amount of Roth IRA conversion equals $10,000.The value, including the converted amount, of all IRAs at the end of the year in which the Roth conversion occurs equals $100,000.

$10,000 (the amount converted) multiplied by ($10,000, aftertax dollars, ÷$100,000, the value of the traditional IRA at year-end, including converted amount) = $1,000. This is the nontaxable portion and $9,000 is subject to taxation without penalty.

You now would have a Roth IRA account equaling $10,000 that when withdrawn after age 59½ and five years of existence will render all dollars, including earnings, income tax-free in that Roth account.

¹ An investment, such as an Individual Retirement Account (IRA), whose earnings are either tax-deferred or tax-exempt.

² Income whose taxes can be postponed until a later date; examples include IRAs and 401(k) plan earnings.

³ A Simplified Employee Pension Plan, commonly known as a SEP-IRA, is a retirement plan specifically designed for self-employed people and small-business owners.  When establishing a SEP-IRA plan for your business, you and any eligible employees establish your own separate SEP-IRA; employer contributions are then made into each eligible employee's SEP-IRA.

⁴ A SIMPLE IRA plan is an IRA-based plan that gives small-business employers a simplified method to make contributions toward their employees’ retirement and their own retirement.  Under a SIMPLE IRA plan, employees may choose to make salary reduction contributions and the employer makes matching or non-elective contributions.  All contributions are made directly to a SIMPLE Individual Retirement Account.

Lord Abbett will waive (or otherwise pay) the yearly $10.00 custodial fee that would be charged each year on an ongoing basis to every new IRA account and, therefore, will not assess a custodial account fee effective in 2013 or any year afterward. Fund level fees and expenses are still applicable.  Please see the current prospectus.