The Roth IRA's principal difference from most other tax-advantaged retirement plans is rather than granting a tax reduction for money placed into the retirement plan, the money withdrawn from the Roth IRA plan during retirement is not taxed, with some restrictions.
The total contributions allowed per year to all IRAs is the lesser of one's taxable compensation (which is not the same as adjusted gross income) and the limit amounts as seen below (this total may be split up between any number of traditional and Roth IRAs.In the case of a married couple, each spouse may contribute the amount listed): The Roth IRA was established by the Taxpayer Relief Act of 1997 (Public Law 105-34) and named for its chief legislative sponsor, Senator William Roth of Delaware.In effect, the Roth IRA will be bifurcated into a "frozen" pension that will continue to enjoy the benefit of the exemption for pensions and a non-pension (essentially a savings account) that will not.Congress has limited who can contribute to a Roth IRA based upon income.By 2007, the number of IRA owners has jumped to over 50 million taxpayers with .3 trillion invested.
In 1997, then Senator William Roth (R-Del) wanted to restore the traditional IRA which had been repealed in 1986, and the upfront tax deduction that goes with it.
There is some controversy over whether this violates existing Joint Tax Treaties, such as the Convention Between Canada and the United States of America With Respect to Taxes on Income and on Capital. Accordingly, distributions from a Roth IRA (as well as other similar plans) to a resident of Canada will generally be exempt from Canadian tax to the extent that they would have been exempt from U. However, where an individual makes a contribution to a Roth IRA while they are a resident of Canada (other than rollover contributions from another Roth IRA), the Roth IRA will lose its status as a "pension" for purposes of the Treaty with respect to the accretions from the time such contribution is made.
Income accretions from such time will be subject to tax in Canada in the year of accrual.
Under congressional budget rules, which work within a 10-year window, the revenue cost of giving that tax break to everyone was too high.
So his staff limited deductible IRAs to people with very low income, and made Roth IRAs ( initially with income limitations) available to others.
In 2000, 46.3 million taxpayers held IRA accounts worth a total of .6 trillion in value according to the Internal Revenue Service (IRS).