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Roth IRA

A Roth IRA allows an investor at any age that income qualifies to save for their retirement. Contributions are made with aftertax dollars and offer the potential of tax-free withdrawals and there are no lifetime required minimum distributions. 

Overview

Overview

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 is a Roth IRA?

A Roth IRA is a tax deferred and potentially tax-free retirement account available to individuals that have earned income and are income qualified. Roth IRA contributions are made with aftertax dollars, but distributions, including earnings, are withdrawn tax-free if certain conditions have been satisfied.

How does a Roth IRA work?

Roth IRA contributions, unlike a traditional IRA which offer a tax deduction, are always funded with aftertax dollars. A Roth account is tax-deferred, and withdrawals including earnings, may be distributed free of income taxes. In addition, Roth IRAs are not subject to required minimum distributions. 

In 2022, an investor may contribute up to $6,000 to a Roth IRA, plus a catch-up contribution of $1,000 for those individualsage 50 and older. Contributions may be made at any time throughout the year, and as late as the investor’s tax filing deadline (generally April 15th) for the prior year.

Who should consider a Roth IRA?

  • An individual who wants to accumulate tax-free retirement funds
  • An individual who believes future tax rates will be higher than today’s
  • An individual who wants to leave his/her beneficiaries a potentially tax-free inheritance


What benefits does a Roth IRA offer?

  • Withdrawals, including earnings, are potentially tax-free
  • Tax diversification (taxable vs. tax-free)
  • Beneficiary payouts can be structured allowing for tax-free payouts 
  • No lifetime required minimum distributions 

 

A Roth IRA is a tax-deferred and potentially tax-free account available to working individuals and their spouses who meet IRS income requirements. Distributions, including accumulated earnings, may be made tax-free if the account has been held at least five years and the individual is at least 59½, or if any of the IRS exceptions apply. Contributions to a Roth IRA are not tax deductible, but withdrawals during retirement are generally tax-free.

The information presented in this section is intended for general information and is not intended to be relied upon and should not be relied upon, as financial, legal or tax advice for any investor. We strongly recommend that you contact your financial, legal or tax advisor regarding your tax situation. 

To comply with Treasury Department regulations, we inform you that, unless otherwise expressly indicated, any tax information contained herein is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed under the Internal Revenue Code or any other applicable tax law, or (ii) promoting, marketing, or recommending to another party any transaction, arrangement, or other matter.

There may be fees, expenses, taxes, and penalties associated with early IRA withdrawals.

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 in 2022 or any year afterward. Fund level fees and expenses are still applicable. Please see the current prospectus.

Eligibility

Eligibility

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.

Who is eligible to make Roth IRA contributions?

An investor can establish a Roth IRA if the following rules are met:

  • Earned income
  • Income qualifies

How does an income test affect Roth IRA eligibility?

An individual’s modified adjusted gross income (MAGI) must be below certain thresholds to be eligible to make a Roth IRA contribution. 

Roth IRA Income limits:

Status

And modified adjusted gross income (MAGI)1 is...

Then...

Married filing jointly or qualifying widowers

Less than $198,000 in 2021 ($204,000 in 2022)

Contribution may equal: $6,000 and if age 50 or older $7,000

At least $198,000, but less than $208,000 in 2021 ($204,000 and $214,000 in 2022)

Contribution amount is proportionately reduced

$208,000 or more in 2021 ($214,000 in 2022)

Ineligible

Single, head of household, or married filing separately and spouses did not live with each other at any time during the year

Less than $125,000 in 2021 ($129,000 in 2022)

Contribution may equal: $6,000 and if age 50 or older $7,000

At least $125,000 but less than $144,000 in 2021 ($129,000 to $140,000 in 2022)

Contribution amount is proportionately reduced

$140,000 or more in 2021 ($144,000 in 2022)

Ineligible
Married Filing Separately (spouses lived with each other spouse at any time during the year) $10,000 or more Ineligible


Can an investor convert their existing traditional IRA(s) to a Roth IRA?

All investors regardless of age or income, including those with SEP and SIMPLE IRAs (two-year-hold period must be satisfied), are eligible to convert all or a portion of their IRAto a Roth IRA. Distributing pretax IRA assets to a Roth IRA via a conversion is a taxable event—subject to taxation in the year the conversion takes place. However, if certain conditions are satisfied, all proceeds, including earnings, are distributed tax free.

Who should consider a Roth IRA conversion?

  • An investor who wants tax-free income
  • An investor who believes future tax rates will be higher than today’s rates
  • An investor who wants tax diversification
  • An investor who does not need to take required minimum distributions
  • An investor who wants to leave his/her beneficiaries a potentially tax-free inheritance

 

1Modified adjusted gross income (MAGI) includes wages, interest, capital gains, income from retirement accounts and alimony paid received by the taxpayer adjusted downward by specific deductions, including contributions to deductible retirement accounts and alimony paid by the taxpayer; but not including standard and itemized deductions.

The information presented in this section is intended for general information and is not intended to be relied upon and should not be relied upon, as financial, legal or tax advice for any investor. We strongly recommend that you contact your financial, legal or tax advisor regarding your tax situation. 

To comply with Treasury Department regulations, we inform you that, unless otherwise expressly indicated, any tax information contained herein is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed under the Internal Revenue Code or any other applicable tax law, or (ii) promoting, marketing, or recommending to another party any transaction, arrangement, or other matter.

There may be fees, expenses, taxes, and penalties associated with early IRA withdrawals.

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 in 2022 or any year afterward. Fund level fees and expenses are still applicable. Please see the current prospectus.

Open an IRA

  1. Complete the writable IRA Application

  2. Send completed application to Lord Abbett Funds Services Center

  3. Feel free to use our Free FedEx shipping option

  4. You’ll receive a confirmation once your IRA is established

Contributions

Contributions

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.

How much can an investor contribute to a Roth IRA?

In 2022, an investor may contribute up to $6,000 to a Roth IRA, plus a catch-up contribution of $1,000 for those investors age 50 and older.

YEAR

Contribution Limit

Age 50 Catch-up Contribution

2022

$6,000

$1,000

2021

$6,000

$1,000

Can an investor contribute to both a traditional and Roth IRA?

Yes, assuming the investor meets Roth IRA eligibility requirements. However, an investor has one combined contribution limit of $6,000 ($7,000 if age 50 or older).

When can an investor contribute to a Roth IRA?

An investor can make a Roth IRA contribution anytime throughout the year. In addition, contributions for the prior year can be made as late as the investor’s tax filing due date (generally April 15th) not including extensions. 

Why would an investor fund a Roth IRA if the contribution is not tax deductible?

Earnings in a Roth IRA grow tax-deferred until withdrawn. If the investor has held the account for five years and reaches age 59½, all funds are withdrawn tax-free. Unlike traditional IRAs, minimum distributions are not required from a Roth IRA.

What if the Roth IRA contribution limit is exceeded?

An investor needs to remove the excess funds by their tax filing deadline (April 15th), plus extension, or face a 6% penalty tax on the excess contribution. 

The information presented in this section is intended for general information and is not intended to be relied upon and should not be relied upon, as financial, legal or tax advice for any investor. We strongly recommend that you contact your financial, legal or tax advisor regarding your tax situation. 

To comply with Treasury Department regulations, we inform you that, unless otherwise expressly indicated, any tax information contained herein is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed under the Internal Revenue Code or any other applicable tax law, or (ii) promoting, marketing, or recommending to another party any transaction, arrangement, or other matter.

There may be fees, expenses, taxes, and penalties associated with early IRA withdrawals.

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 in 2022 or any year afterward. Fund level fees and expenses are still applicable. Please see the current prospectus.

Distributions

Distributions

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 types of distributions can be taken from a Roth IRA?

A Roth IRA account owner can always withdraw their contributions (basis) without tax or penalty at any time or age. A Roth IRA allows for earnings to be distributed tax-free so long as certain criteria are satisfied, referred to as a qualified distribution.

There are several different kinds of distributions that can be taken from a Roth IRA. We briefly summarize each distribution type below:

What is a qualified distribution?

A qualified distribution from a Roth IRA, including earnings, is federally tax-free if the account owner: 

  1. Held the account for five years, and
  2. Attained age 59½ or is disabled


What is a non-qualified distribution?

Because earnings on a Roth IRA are pretax, while contributions are funded with aftertax dollars, a Roth IRA owner receiving a non-qualified distribution is subject to tax on the earnings portion only. In addition, a 10% penalty tax applies if the owner has not reached age 59½ and an exception does not apply.

Are Roth IRAs subject to lifetime required minimum distributions (RMDs)?

No. A Roth IRA owner upon reaching age 72 is not required to take a minimum distribution. 

What is the 60-day withdrawal and rollover rule?

Once in a 12-month period (not calendar year), an IRA owner may withdraw any amount, for any reason, from any of their IRAs, and repay the funds within 60 days without being subject to taxation or an early withdrawal penalty. If not repaid within the allotted 60-day window, the  owner will be subject to potential taxation and penalties.

The one IRA rollover per year applies on a per-taxpayer basis Therefore, an investor can elect a single 60-day withdrawal and rollover in a 12-month period regardless of the number or type of IRAs owned.

What death benefits are available from a Roth IRA?

When a Roth IRA owner dies, an inherited IRA is created. However, inherited Roth IRA treatment differs depending on who inherits the account. 

Spousal beneficiary:

A spousal beneficiary has the following options available upon inheriting a Roth IRA:

  • Treat the IRA as his or her own
  • Roll over the IRA into his or her own Roth IRA
  • Remain a beneficiary 


Non-Spouse Beneficiary:

The Setting Every Community for Retirement Enhancement (SECURE) Act of 2019 introduced significant changes to long-standing rules that apply to retirement accounts inherited by a non-spouse beneficiary. The new rules apply to  beneficiaries that inherit an IRA on or after January 1 2020.  

One of the most significant changes was the elimination of the ‘stretch’ provision for most non-spouse designated beneficiaries of inherited retirement accounts and the introduction of a “10-Year Rule” thus requiring certain beneficiaries to liquidate the entire balance of their inherited retirement account within ten years after the account owner’s death

A required minimum distribution (RMD) is the minimum amount an account owner must withdraw from a retirement account each year. An owner must start taking withdrawals from a retirement plan account at age 72. Roth IRAs do not require withdrawals until after the death of the owner.

The information presented in this section is intended for general information and is not intended to be relied upon and should not be relied upon, as financial, legal or tax advice for any particular investor. We strongly recommend that you contact your financial, legal or tax advisor regarding your particular tax situation. 

To comply with Treasury Department regulations, we inform you that, unless otherwise expressly indicated, any tax information contained herein is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed under the Internal Revenue Code or any other applicable tax law, or (ii) promoting, marketing, or recommending to another party any transaction, arrangement, or other matter.

There may be fees, expenses, taxes, and penalties associated with early IRA withdrawals.

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 in 2022 or any year afterward. Fund level fees and expenses are still applicable. Please see the current prospectus.

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