A Roth IRA can be your most powerful tool in saving for retirement. But to take advantage of this amazing wealth-building strategy, you need to be familiar with all the Roth IRA rules that define whether you can use it and how to make the most of it. Let's take a look at the five most important Roth IRA rules to keep in mind.

Rule 1: Too much income means no Roth for you.
The first rule to keep in mind is that some people aren't allowed to contribute to a Roth. For 2013, single filers with more than $127,000 in what's known as modified adjusted gross income can't make any contribution to a Roth, while those with incomes between $112,000 and $127,000 are stuck with reduced contributions. For joint filers, the similar limits are $178,000 and $188,000.

Rule 2: The amount you can contribute just went up.
Roth contribution limits are indexed for inflation, and in 2013, they went up. Now, you can put $5,500 into your Roth IRA, and if you're 50 or older, you can add another $1,000 on top of that. If you haven't made a contribution for 2012 yet, you still have until April 15 to do so -- the limits for last year are $5,000 and $6,000, respectively.


Rule 3: Anyone can convert a traditional IRA to a Roth.
It used to be that income limits prevented some taxpayers from converting existing traditional IRAs to Roth IRAs. But in 2010, those rules went away, and now, anyone can convert. Just keep in mind that converting to a Roth usually creates immediate tax liability, as you have to include the amount converted in your taxable income for the year of the conversion. Given the tax-free benefits of Roth IRAs, paying extra tax now might be worth it, but you still have to run the numbers.

Rule 4: Be careful when you take distributions from your Roth IRA.
If you do everything right, money you take from your Roth will always be tax-free. But complicated rules govern withdrawals from Roth IRAs, and if you're not careful, you can turn tax-free income into taxable income or even have to pay penalties. In general, you can withdraw your initial contributions at any time without penalties or tax consequences, but if you take out earnings within the first five years you have the account or before you turn 59 1/2, you'll owe a 10% penalty unless it qualifies for exceptions such as disability, first-time home costs, or higher-education expenses.

Rule 5: Be smart about beneficiaries.
If you plan to use up your Roth IRA assets before you die, then worrying about beneficiaries may seem silly. But Roth accounts can be great estate planning tools because they allow your heirs to take advantage of their tax-free benefits as well. So in choosing a Roth beneficiary, be sure to take into account the fact that your chosen heirs will be allowed to draw down the Roth gradually over their remaining life expectancy. The younger the beneficiary, the longer those assets will grow tax-free.

Use your Roth the right way
Roths are great tools, but knowing these Roth IRA rules is important to ensure you don't make mistakes that could jeopardize your retirement savings. For more on Roths, be sure to take a look at the IRS website, which includes a lot of useful information on both traditional and Roth IRAs.

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The article 5 Roth IRA Rules You Need to Know originally appeared on Fool.com.

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