The Roth IRA, or the individual retirement arrangement, is an ideal way to save for the retirement years. An individual can open his own IRA and contribute funds to it. What an individual contributes to the Roth IRA is termed as the compensation income. If you are employed, then the compensation income is the paycheck you get in lieu of your services. Compensation income can also be the income you get from being self-employed, or what you get from an alimony settlement.

There is a limit to the amount which a person can contribute. The Contribution cannot be more than $4,000 per financial year, or 100% of your earned income, whichever is less. To contribute to the Roth IRA, you need to have taxable income, and also the adjusted gross income should be less than $110,000 individually, $160,000 if you are married and file a joint return, and $100,000 if you are married but file separate returns. Also, the amount you contribute to the Roth IRA will be reduced by the Contributions you make to a traditional IRA. This means is that the total Contributions you make to a traditional IRA and the Roth IRA for a financial year should not exceed the total Contribution allowed for that particular year. Also, in case of the Roth IRA, your Contributions will be reduced if your income exceeds certain limits.

Another option open to you to make Contributions to the Roth IRA is the conversion method. This means that you can covert your traditional IRA to a Roth IRA. This can be done by taking the IRA out of one account and transferring it to the Roth IRA account within 60 days of receiving the funds.

One thing that you should keep in mind is that, whereas Contributions made to the Roth IRA are taxable, the withdrawals or distribution is not.