Contributions are phased out for married taxpayers filing jointly with AGI between $167,000 and $177,000 and for single taxpayers with AGI between $105,000 and $120,000. The maximum annual contribution is the lesser of $5,000 or $10,000 for married couples or joint earned income (unchanged from 2009). Pension, investment, and rental income are not considered earned income. Individuals age 50 and older can make an additional $1,000 catch-up contribution.

Roth IRAs are a flexible way to save for retirement. Contributions can be withdrawn at any time with no tax consequences. Earnings and capital gains can be withdrawn on a tax-free basis if a qualified distribution is made:

• at least five tax years after your first contribution and
• you have attained age 59 1/2 or due to death, disability, or to pay up to $10,000 of qualified first-time home buyer expenses.

Other characteristics of a Roth IRA may make it an attractive investment for retirees:

• You can make contributions as long as you have earned income, no matter what your age. With traditional IRAs, you must stop making contributions when you reach age 70 1/2.
• Mandatory withdrawals after you attain age 70 1/2 are not required. You can take out as much or as little as you want, whenever you want. If you don't need the money, the balance can continue to grow on a tax-deferred basis.
• Qualified distributions from Roth IRAs are not included in AGI. Thus, these distributions will not affect whether your Social Security benefits are subject to income taxes.
• Roth IRAs can provide a tax-advantaged way to accumulate assets for heirs. Both traditional and Roth IRAs are subject to estate taxes. However, the beneficiaries of a traditional IRA must also pay income taxes on the proceeds, while beneficiaries of a Roth IRA receive qualified amounts federal income tax free.