A Roth IRA is one of the best investment vehicles to save for retirement. The biggest reason: You enjoy tax-free growth on all the money you put in -- that is, of course, if you follow the Roth IRA rules set forth by the IRS. Below are the most pertinent rules for 2015.
1. You can only contribute so much to a Roth
There are usually two different contribution limits -- one for those under 50 and a higher "catch-up" limit for those aged 50 and older. Since the Roth IRA was introduced in 1998, the amount of money that you are allowed to contribute has increased at a steady clip.
Those who were hoping to put away a little more in their Roth in 2015 are out of luck, as the contribution limits will remain the same as they have been for the past two years: $5,500 for those under 50 and $6,500 for those aged 50 and older.
2. Income limits are edging slightly higher
As it is, not everyone can take advantage of Roth IRAs. That's because there is a ceiling on how much income you can earn while still being eligible for a Roth. Slightly more people should be eligible in 2015, as those ceilings have edged a little higher. And it should be noted that these income limits are based on your modified adjusted gross income, or MAGI, which you can calculate at the IRS website.
If you're single, the amount you can contribute to a Roth IRA gets reduced once your MAGI goes over $116,000. And once your MAGI hits $131,000, you can no longer contribute to a Roth IRA. For married couples filing jointly, the reduction in contributions starts at the $183,000 threshold, and contributions are prohibited beyond incomes of $193,000.
All of these figures will be $2,000 higher in 2015 than they are currently.
3. You still have plenty of time
Not all Roth IRA rules are restrictive. One of the great things about contributing to a Roth IRA is that you get an extra three-and-a-half months to make sure you're putting in what you want. Unlike other tax-advantaged programs, Roth IRAs give you until April 15 of the next calendar year to contribute for the current tax year.
In simple terms, that means you have until April 15, 2015 to contribute to your 2014 Roth IRA. So you'll have to follow the rules outlined in this article, along with all other 2015 Roth IRA rules, up until April 2016, when the window for making your 2015 Roth IRA contributions closes.
4. You can pull money out now -- and not pay a penalty
The money you put into a Roth IRA has already been taxed by the IRS. So if you put that money into a Roth and want to withdraw it -- say, for a down payment on a house or higher-education costs -- you can do so without any penalty.
But there's a catch.
You can only withdraw an amount equal to, or lesser than, your contributions. So if you've invested $50,000 in your Roth IRA, but it's now worth over $100,000, you can only withdraw that original $50,000 without penalty. And once that money is withdrawn, it can't be retroactively put back in.
5. Start now so you can withdraw the growth when you need it
There are a couple of confusing Roth IRA rules referred to as the "five-year rules." Motley Fool retirement expert Dan Caplinger gives a thorough breakdown of how these rules work, but the basic summary is simple.
If you want to withdraw more than your own contributions from your Roth IRA without incurring income tax and potentially a 10% penalty, you must have owned your Roth IRA for at least five years, and you must be at least 59-1/2 years old. Further limitations apply to Roth conversions.
This rule is especially important for those who are nearing retirement and haven't opened a Roth IRA. If you want to use this type of account, open one as soon as possible to make sure you'll surpass the five-year mark by the time you need those funds.