Merrill Roth IRA: Eligibility, Contributions, and Investment Options
Understand the key aspects of a Merrill Roth IRA, including eligibility, contribution limits, tax benefits, investment choices, and withdrawal rules.
Saving for retirement is a priority for many, and a Roth IRA offers tax advantages that help grow wealth over time. Merrill provides a Roth IRA with various investment choices and tools to support long-term financial goals.
Understanding its contribution limits, tax benefits, and withdrawal rules is essential before opening an account.
Eligibility Criteria
To open a Merrill Roth IRA, investors must meet IRS income and filing status requirements. The key factor is modified adjusted gross income (MAGI), which determines whether contributions are allowed in full, partially, or not at all.
For 2024, single filers with a MAGI below $146,000 can contribute the maximum amount. Those earning between $146,000 and $161,000 qualify for a reduced contribution, while those exceeding $161,000 cannot contribute directly. Married couples filing jointly can contribute fully if their MAGI is below $230,000, with a phase-out range between $230,000 and $240,000. Beyond $240,000, direct contributions are not allowed.
Married individuals filing separately have the strictest limits, with contributions phased out between $0 and $10,000 in MAGI. This makes direct contributions nearly impossible unless they use a backdoor Roth IRA strategy, which involves converting a traditional IRA to a Roth. Merrill follows IRS rules without additional income restrictions, but investors should verify their MAGI annually to avoid excess contribution penalties.
Contribution Rules
The IRS sets annual contribution limits for Roth IRAs. For 2024, individuals under 50 can contribute up to $7,000, while those 50 and older can add a $1,000 catch-up contribution, bringing their total to $8,000. These limits apply across all Roth IRAs owned by an individual.
Contributions must come from earned income, such as wages, salaries, bonuses, or self-employment earnings. Passive income, including rental income or dividends, does not qualify. If an individual earns less than the contribution limit, they can only contribute up to their total earned income for the year. Spousal contributions are allowed if one spouse has little or no earned income, provided they file a joint tax return.
Contributions for a given tax year can be made until the federal tax filing deadline, typically April 15 of the following year. Once funds are contributed, they cannot be reassigned to a different tax year.
Tax Treatment
A Merrill Roth IRA offers tax-free growth and qualified withdrawals. Contributions are made with after-tax dollars, meaning there are no immediate tax deductions. However, earnings—whether from interest, dividends, or capital gains—grow tax-free.
Withdrawals of earnings must meet specific conditions to be tax-free. A withdrawal is considered “qualified” if the account has been open for at least five years and the account holder is at least 59½. If these conditions are met, both contributions and earnings can be withdrawn tax-free.
Certain exceptions allow for penalty-free withdrawals of earnings, such as up to $10,000 for a first-time home purchase or for qualified education expenses. However, taxes may still apply in some cases. Non-qualified withdrawals of earnings are subject to income tax and a 10% early withdrawal penalty unless an exception applies. Contributions can be withdrawn at any time without tax or penalty.
Investment Options
A Merrill Roth IRA offers a range of investment choices, allowing account holders to build portfolios based on risk tolerance, time horizon, and financial goals. Investors can choose from individual stocks, exchange-traded funds (ETFs), mutual funds, fixed-income securities, and certificates of deposit (CDs).
Mutual funds provide professional management and diversification across asset classes. Fixed-income securities, such as corporate and government bonds, can add stability by generating interest income while reducing volatility. CDs offer a secure, fixed return but may limit liquidity.
For those preferring a hands-off approach, Merrill Guided Investing provides automated portfolio management based on personalized risk assessments.
Account Fees
Merrill does not charge an account opening or maintenance fee for its Roth IRA, but certain costs depend on the investments chosen and level of account management.
Self-directed investors using Merrill Edge pay no trading commissions on stocks and ETFs. However, mutual funds may have expense ratios and potential sales charges. Fixed-income securities, such as bonds and CDs, may include markups or markdowns in their pricing.
Merrill Guided Investing, which provides automated portfolio management, charges an annual advisory fee of 0.45% of assets under management. The advisor-assisted version costs 0.85% annually. Additional fees may apply for wire transfers, paper statements, or account closures.
Distribution Guidelines
Withdrawing funds from a Merrill Roth IRA follows specific rules to avoid taxes or penalties. Contributions can be accessed at any time without restrictions, but earnings have withdrawal conditions based on age and account duration.
Qualified distributions—withdrawals made after age 59½ and at least five years after the first contribution—are entirely tax-free. Non-qualified withdrawals of earnings may incur income tax and a 10% penalty unless an exception applies. Common exceptions include disability, unreimbursed medical expenses exceeding 7.5% of adjusted gross income, and distributions to beneficiaries after the account holder’s death.
Unlike traditional IRAs, Roth IRAs do not require minimum distributions (RMDs) during the account holder’s lifetime. This allows retirees to keep funds invested indefinitely, potentially passing on tax-free assets to heirs. Beneficiaries must follow distribution rules based on their relationship to the account holder, with most required to withdraw inherited assets within 10 years.