Contributions

• Contributions to a Roth IRA are not deducted from your taxes. As of 2010, those filing as single qualify to make a full contribution to a Roth IRA, providing their modified adjusted gross income is less than $105,000. Married couples filing jointly must must earn less than $167,000 to make a full contribution. The maximum contribution is $5,000 per person of earned income, with those over age 50 allowed to make an additional $1,000 catch-up contribution.
  
  

Distributions

• Regular distributions from a Roth IRA do not generate a Form 1099. A regular distribution is defined as a distribution made on an account where the owner is at least age 59 1/2 and has held the assets in the account for at least five years. The Roth IRA administrator will use the FIFO (first-in, first-out) method of accounting to ensure the assets do not generate a taxable event. The Roth IRA can double, triple or quadruple over the years and remain tax-free.
  
  

Conversions

• Roth conversions are an option for those who qualify to convert a traditional IRA into a Roth IRA. When a person converts a traditional IRA, the entire balance of the IRA must be added to taxes. Those converting in 2010 are able to stretch the amount due in taxes over two years in 2011 and 2012. To qualify for a conversion, your adjusted gross income must be less than $100,000, regardless of whether your are married or single.
  
  

Considerations

• The Roth IRA has several considerations for those who may need access to assets prior to retirement. The exceptions that avoid 10 percent tax penalties are using the funds for a first-time home purchase, tuition and hardship distributions. You are allowed to use up to $10,000 toward a first-time home purchase. You can pay college tuition for yourself, a spouse, child or grandchild, or you can use the assets to pay medical expenses in excess of 7.5 percent of your income, or to prevent foreclosure or eviction.
  
  

Misconceptions

• Most people hear tax-free and assume this is the best scenario, but it may not be. Consider a person who has substantial income and gets additional benefit from making an annual contribution to a deductible IRA. If the person would pay more in taxes over the course of his working lifetime, compared to a lowered tax rate in retirement, it may be wise to defer the taxes until later. Paying 39 percent on $5,000 is $1,950. The same $5,000 in a distribution in retirement may only be taxed at 15 percent, or $750.