Roth IRA Eligibility

Who can contribute?

This material is intended as general information only and is not intended as legal or tax advice. Some of this information may be quite complex and we strongly suggest you consult with your advisor or tax professional based on your individual situation.

What rules determine Roth IRA eligibility?

Roth IRA eligibility is determined by the following rules:

Individuals (and their spouse) who have earned income and meet statutory earnings requirements.
Unlike a Traditional IRA contributions can be made for anyone, even those over age 70½.
Individuals who have a distribution of a designated Roth contribution account from a qualified retirement plan (401(k), 403(b), or 457(b) governmental plan, regardless of age or employment status.
Individuals converting a traditional IRA, including SEP¹ or SIMPLE IRAs,²to a Roth IRA. A SIMPLE IRA needs to have been in existence for two years from the date of the first contribution, unless the individual is over age 59½, to convert the account. (See below for more information on converting a traditional IRA to a Lord Abbett Roth IRA.) Direct rollovers from qualified plans may also be converted to Roth IRAs however, there may be fees involved.

¹ 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 a business, the owner and any eligible employees establish their own separate SEP-IRA; employer contributions are then made into each eligible employee’s SEP-IRA.

² 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 (IRA) set up for each employee (a SIMPLE IRA). SIMPLE IRA plans are maintained on a calendar-year basis.

How do the statutory earnings requirements affect Roth IRA eligibility?

For 2012, couples filing jointly are eligible to make the full Roth contribution ($5,500) if the couple's joint income is $173,000 or less. A partial Roth contribution is allowed if the couple's joint income does not exceed $183,000. These income limits increase to $178,000 and $188,000, respectively, regarding any contribution made for calendar year 2013.

Single individuals can make full Roth IRA contributions when income is $110,000 or less in 2012 ($112,000 or less in 2013). A partial Roth contribution is allowed if the income is above $110,000, but does not exceed $125,000. These income limits increase to $112,000 and $127,000, respectively, regarding any contribution made for calendar year 2013.

The income eligibility rules are summarized in the following table:

If taxable compensation and filing status is...	And modified adjusted gross income (AGI)³is...	Then...
Married filing jointly or qualifying widow(er)	Less than $173,000 ($178,000 in 2013)	Contribution may equal: $5,000 and if age 50 or older $6,000
	At least $173,000, but less than $183,000 ($178,000 and $188,000 in 2013)	The contribution amount is proportionately reduced
	$183,000 or more ($188,000 in 2013)	No contribution to a Roth IRA is allowed
Single, head of household, or married filing separately and spouses did not live with each other at any time during the year	Less than $110,000 ($112,000 in 2013)	Contribution may equal: $5,000 and if age 50 or older $6,000
	At least $110,000 but less than $125,000 ($112,000 to $127,000 in 2013)	The contribution amount is proportionately reduced
	$125,000 or more ($127,000 in 2013)	No contribution to a Roth IRA is allowed

Consider investing in a Lord Abbett Roth IRA if:

Your earned income is below the Roth IRA's maximum income limit.
You have an asset transfer rollover from a previous employer's Roth retirement plan account.
It is anticipated you will be in a higher tax bracket during your retirement years.

How do I convert my existing traditional IRA or qualified plan distribution to a Roth IRA?

Beginning in 2010, all traditional IRA account owners regardless of age, including those with SEP¹ and SIMPLE IRA² accounts, have the option to convert their traditional IRA and have it become a Roth IRA. Prior to 2010, individuals and couples had to have adjusted gross income below $100,000 to convert their traditional IRAs to a Roth. (See the Roth Conversion Resource Center)

Converting means that all or a portion of your traditional IRA becomes taxable, and the account is reclassified as a Roth IRA. This can also be accomplished if the funds are transferred directly from a qualified retirement plan, such as a 401(k) plan. (See "Rollovers.") If the account is held until age 59½ and at least five years, all the Roth IRA proceeds, including the earnings, will be income tax free.
Consider a Roth conversion if:

You would like to have the opportunity to have tax-free retirement income.
You believe future tax rates will be greater than today's.
The taxes due can be paid without using converted IRA assets as a 10% penalty may apply to the portion used to pay the taxes.
You believe you could benefit from many years of tax deferral.
There is a desire to leave a tax-free legacy to a spouse or non-spouse beneficiary.

¹ 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.

² 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 set up for each employee (a SIMPLE IRA). SIMPLE IRA plans are maintained on a calendar-year basis.