Individual Retirement Accounts
You can reduce your anxiety about planning for the future by taking a realistic look at your current financial situation. Money is the single biggest concern about retirement for most people, so having a clear picture of your financial goals will go a long way towards putting your mind at ease.
The road to retirement can be a confusing one. Through our partnership with UVEST Financial Services we can help you determine the right product for you, customizing your IRA with mutual funds, stocks, bonds, CDs etc. IRAs have attracted a huge amount of retirement dollars. There are two basic types: Traditional and Roth:
Traditional IRA:
Anyone under the age of 70 1/2 who has earned income is eligible to contribute to a traditional IRA. Contributions may be tax deductible, depending on your income level and active participation in an employer sponsored retirement plan (see table below).
| |
Income |
Active participant in an
Employer-Sponsored Plan |
Not active in an
Employer-Sponsored Plan |
| 2008 Phaseout Limits |
Deductibility of Contributions |
 |
Up to $50,000
$50,001 - $60,000
Over $60,000 |
All
Part
None |
All
All
All |
 |
Up to $70,000
$70,001 - $80,000
Over $80,000 |
All
Part
None |
All
All
All |
The potential earnings in these accounts grow tax deferred until you withdraw your funds, at which time they are taxed as regular income. In addition, there may be a 10 percent federal tax penalty if you withdraw funds prior to age 59 1/2.
Traditional IRAs are subject to mandatory distributions that must begin by April 1st of the year after you turn 70 1/2. In succeeding years, minimum annual distributions must be taken no later than December 31. If you don't, you're subject to a 50% federal tax penalty on the amount you should have withdrawn.
If both spouses work, each can contribute the maximum annual contribution limit ($5,000 each in 2008), as long as the amount contributed does not exceed joint earned income. If only one spouse works, a spousal IRA may allow the couple to contribute the maximum amount for each individual, as long as the amount contributed does not exceed earned income.
Tax law changes have affected many people's ability to deduct IRA contributions. Your decision to set up and contribute to an IRA may be influenced by whether or not your contribution is tax deductible. |
Roth IRA:
The Roth IRA is a nondeductible IRA that allows the opportunity for tax-free earnings accumulation and withdrawals. Unlike traditional IRA distributions, qualified distributions from Roth IRAs are not included in gross income. You can also contribute past age 70 1/2, and you do not have to begin taking minimum withdrawals due to age.
To qualify for a tax-free and penalty-free withdrawal from a Roth IRA at retirement (after age 59 1/2), a distribution of interest can only be made after a five-year holding period. In addition, a qualified distribution can be made before age 59 1/2 and after five years, due to death or disability or for the first-time home-buyer expenses (up to a $10,000 lifetime cap). Eligibility to contribute to a Roth IRA phase out at higher modified gross income levels.
How do the Tax Provisions passed in 2001 affect my IRA ?
IRA (Traditional & Roth) annual contribution limit is $5,000 in 2008. If you are over 50 an additional "catch up" contribution of $1,000 is allowed in 2008.
This means depending upon your current situation, you may be able to remove $6,000 from your 2008 taxable income with a Traditional IRA or even a Roth IRA.
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