A Roth IRA is an individual retirement arrangement that, except as explained below, is subject to the rules that apply to a traditional IRA.

To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is set up. Unlike a traditional IRA, you cannot deduct contributions to a Roth IRA. But, if you satisfy the requirements, qualified distributions (defined in Publication 590) are tax free. Contributions can be made to your Roth IRA after you reach age 70 1/2 and you can leave amounts in your Roth IRA as long as you live.

Eligibility

You can establish a Roth IRA by making a regular contribution to a Roth IRA or by converting a traditional IRA to a Roth IRA.
You may be eligible to make a regular contribution to a Roth IRA even if you participate in a retirement plan maintained by your employer. These contributions can be as much as $5,000 for 2010 ($6,000 if you're 50 or older by the end of the year). There is a requirement that you or your spouse must have qualifying income at least equal to the amount contributed.

You can convert your regular IRA to a Roth IRA in 2010. You'll have to pay tax in the year of the conversion, but for many people the long-term savings outweigh the conversion tax.

Qualified Distributions fro a Roth IRA:

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:
a. Made on or after the date you reach age 591/2,
b. Made because you are disabled,
c. Made to a beneficiary or to your estate after your death, or
d. 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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