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TRADITIONAL IRA
An Individual Retirement Account (IRA) is a sound way to save for retirement. It lets you accumulate savings with tax deferred compounding of interest, and in most cases with tax-deductible contributions to supplement your pension and Social Security benefits when you retire.
Am I eligible to open an IRA?
Nearly everyone qualifies for an Individual Retirement Account. There is no minimum or maximum age for opening an IRA- you can open one at age 8, 38 or 68.
Guidelines for making IRA contributions?
The first guideline concerns your age. There is no minimum age for contributing to an IRA, and you can continue to make regular contributions until the year you reach age 701/2. (Rollover or direct transfers of IRA funds from one IRA to another and from a qualified retirement plan to an IRA, and contributions to a Simplified Employee Pension plan can be made at any age). You also must have received compensation. Compensation includes wages, salaries, tips, bonuses, and other amounts received for services rendered. Alimony is also considered compensation. You can make regular IRA contributions any year that you are younger than age 701/2 and you (or your spouse with whom you file a joint tax return) received compensation during the year.
How much can I contribute?
The amount qualified IRA owners are permitted to tax year 2003 is once again $3,000. This amount will continue to gradually increase to $5,000 by 2008. Additionally catch up contributions can be made by qualified individuals over 50. After 2008, the contribution limit will be adjusted annually for inflation in $500.00 increments.
If you qualify you, you are permitted to annually contribute the following maximum amounts, or 100% of your earned compensation and alimony, whichever is less:
Maximum Contribution Limits
| YEAR |
UNDER AGE 50 |
OVER AGE 50 |
| 2004 |
$3,000 |
$3,500 |
| 2005 |
$4,000 |
$4,500 |
| 2006 |
$4,000 |
$5,000 |
| 2007 |
$4,000 |
$5,000 |
| 2008 |
$5,000 |
$6,000 |
| 2009 |
$5,000 |
$6,000 |
Spousal IRA rules enable married couples filing jointly to contribute the maximum amount to their separate IRA accounts even if the one spouse has little or no earned income. To qualify, their combined income must be equal to ro greater than the total contributed amount.
When can I contribute to an IRA?
An IRA is flexible. You decide how and when to make contributions. You also have flexibility in designating your contribution to the current year. Contributions for the preceding year can be made until April 15 (the deadline for filing federal income tax).
ROTH IRA
The money you contribute to a Roth IRA has already been taxed. So the principal amount is never subject to taxes or penalties in the future, as long as you stay within the contribution guidelines. This retirement plan allows the money you contribute to grow tax deferred. If you do not withdraw any of the earnings until you have had the plan for at least five years, and satisfy on of the qualified events, those tax-deferred earnings becomes tax free.
Who is eligible?
Unlike the traditional Ira, there is no 70 1/2 age limit on making contributions. You simply need to have earned income equal to the amount you contribute up to a maximum of $2,000 (4,000 combined for spouses) per year. There are income thresholds, which may reduce the amount you can contribute).
How much can I contribute?
Individuals may contribute up to $4,000 under age 50 and $4,500 over age 50 per year if their adjusted gross income (AGI) is less than $95,000. If an individual‘s AGI is between $95,000 and $110,000, they may contribute a reduced amount adjusted for their income. Married couples filing jointly may contribute up to $2,000 each if their AGI is less than $150,000. Contributions for joint filers are reduced for AGI’s between $150,000 and $160,000. Roth IRA contributions may not be made by individual AGI of more than $110,000 or couples with AGI of more than $160,000.
Am I eligible to make a full contribution?
Refer to the table below to determine if you are eligible to contribute the full amount for your filing status:
|
Full contribution |
Partial Contribution - If your AGI is between: |
| Single Filer |
$95,000 |
$95,000 - $110,000 (no contribution if over $110,000) |
| Married filing jointly |
$150,000 |
$150,000 - $160,000 (no contribution if over $160,000) |
When can I use my ROTH IRA assets?
If you satisfy two conditions, you may make tax-free and penalty-free withdrawals from your Roth IRA. First, the plan must have been open for a minimum of five years. Second, the withdrawal must be made after the occurrence of one of the following events:
Age 591/2
Death
Disability
First Home purchase
Can I move money from my traditional IRA to my Roth IRA?
The answer is “Yes”. There are specific rules that govern the process of rolling over funds from traditional to Roth IRA.
Am I required to take funds from my Roth IRA?
Unlike the Traditional IRA, there are no required minimum distributions at age 701/2. Your earnings can continue to grow until you need them. There are special requirements when these plans pass to your beneficiaries.
EDUCATIONAL IRA
An Educational IRA is an investment tool created for the purpose of paying for the future cost of a child’s post-secondary education. The plan allows total after-tax contributions of $500 per year for each child until they reach the age of 18. These contributions and their subsequent earnings are tax-free when withdrawn to pay for qualified education expenses.
What is a qualified higher education expense?
A qualified higher education expense is one that is required for the enrollment or attendance by your child at an eligible educational institution.
These expenses include:
Tuition
Fees
Books
Supplies, and
Equipment
Who can contribute to an Education IRA?
The answer to that question is “ almost anyone”.
For more information on any of these IRA plans please ask one of our representatives for details.
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