Roth IRA is an tax-advantaged scheme which is basically followed in United States and in India PPF and EPF policy is followed instead of IRA but i think knowledge should not be limited to a particular field or a country.

1. Everything one should know about Roth Individual
Retirement Account (IRA)
Meaning of Roth IRA
A Roth IRA is a tax-advantaged retirement savings account that allows you to withdraw your
savings tax-free. Established in 1997, it was named after William Roth, a former Delaware
Senator.
Whereas IRA stands for Individual Retirement Account.
Roth IRAs are funded with after-tax dollars; the contributions are not tax-deductible. But
once you start withdrawing funds, the money is tax-free.
Applicability of IRA
IRA is tax-advantage method for US residents in which an amount is deposited and the same
amount can be invested in securities .
However in India PPF and EPF tax saving scheme is followed instead of Individual Retirement
Account (IRA).
Working of Roth IRA
A Roth IRA can be established at any time. However, contributions for a tax year must be
made by the IRA owner’s tax-filing deadline, which is generally April 15 of the following
year. Tax-filing extensions do not apply.
However following procedure is required to be followed to contribute towards Roth IRA:
 Income deposited in Roth IRA account is post tax – means you have to pay the tax as
per Income Tax slab rate.
 Also the amount deposited in Roth IRA account can be further
invested in securities
 Any amount earned by Investing in securities is not taxed within the account but to
be taxed at the time of withdrawl.
 Amount form Roth IRA can withdrawl before or after the maturity with following
conditions i.e.:
 If the amount is withdrawl after the maturity i.e. after the
age of 59 ½ then the income earned by investing in
securities is taxable as per Income Tax slab rate .
 If the amount is withdrawl before maturity then :
 Only the principle amount which is invested
initially is not taxed nor it is penalised.

2.  Amount in excess of Principle Amount will be
taxable as per IT slab Rate and also penalised
@10%.
 Maturity for withdrawl of amount from Roth IRA Account is after the age of 59 ½.
 Amount deposited in Roth IRA can also be withdrawn after the age of 70 ½ years.
 Hence, Roth IRA is much better if an individual want to withdraw the principle
amount after certain years which is also not taxable (as taxed at the time of deposit)
but also not liable to penalty @10%.
 Withdrawal rules are mentioned below under the Separate Withdrawalhead
What can be contributed to Roth IRA account ?
The IRS dictates not only how much money you can deposit in a Roth, but the type of
money you can deposit.
Basically, you can only contribute earned income to a Roth IRA, However :
 For Employees, compensation that is eligible to fund a Roth IRA includes
wages, salaries, commissions, bonuses, and other amounts paid to the
individual for the services they perform.
 For a self-employed individual or a partner in a partnership, compensation is
the individual’s net earnings from their business, less any deduction allowed
for contributions made to retirement plans on the individual’s behalf and
further reduced by 50% of the individual’s self-employment taxes.
 Money related to divorce—alimony, child support, or in a settlement—can
also be contributed.
In short Funds not eligible for contribution :
 Rental income or other profits from property maintenance
 Interest income
 Pension or annuity income
 Stock dividends and capital gains
However an individual (employee or partner or self employed) can never contribute
more to your IRA than you earned in that tax year.

3. Who is Eligible to contribute in Roth IRA as per Annual Income
Limit ?
Those whose annual income is above a certain amount, which the IRS adjusts
periodically, become ineligible to contribute.
The chart below shows the figures for 2019 and 2020.
Category Income Range for 2019
Contribution
Income Range for 2020
Contribution
Married and filing a
joint tax return
Full: Less than $193,000
Partial: From $193,00, to
less than $203,000
Full: Less than $196,000
Partial: From $196,000 to
less than $206,000
Married, filing a
separate tax return,
lived with spouse at
any time during the
year
Full: $0
Partial: Less than $10,000
Full: $0
Partial: Less than $10,000
Single, head of
household, or married
filing separately
without living with
spouse at any time
during the year
Full: Less than $122,000
Partial: From $122,00 to
less than $137,000
Full: Less than $124,000
Partial: From $124,000 to
less than $139,000
Hence, an individual who earns less than the ranges shown for his or her appropriate
category can contribute up to 100% of his or her compensation or the contribution
limit, whichever is less.
What is Withdrawal Rule?
At any time, an individual may withdraw contributions from your Roth IRA both tax-
and penalty-free but an amount to be withdrawn must be less then or equal to the
sum put in, the distribution is not considered taxable income and is not subject to
penalty, regardless of your age or how long it has been in the account.
However, Withdrawal of earnings may be subject to taxes and/or a 10% penalty,
depending on your age and whether you've met the 5-year rule i.e. –

4. If an individual met 5 year rule then:
 Under 59½: Earnings are subject to taxes and penalties. An Individual may be
able to avoid taxes and penalties :
o if you use the money for a first-time home purchase (a $10,000-
lifetime limit applies),
o if you have a permanent disability, or
o if you pass away (and your beneficiary takes the distribution).
 Age 59½ and older: No taxes or penalties.
If an individual does not met 5 year rule then:
 Under 59½: Earnings are subject to taxes and penalties. An Individual may be
able to avoid the penalties (but not the taxes)
o if you use the money for a first-time home purchase (a $10,000-
lifetime limit applies),
o qualified education expenses,
o unreimbursed medical expenses,
o if you have a permanent disability, or
o if you pass away (and your beneficiary takes the distribution).
 59½ and older: Earnings are subject to taxes but not penalties.