Who can play:
You can, if you're under 70½ and are earning an income. If you're married and do not work, but your spouse does, you may also make a traditional IRA contribution. (Some experts strongly suggest you do this so that if you find yurself on your own, you will have retirement funds in your own name.)
How much you can put into an IRA:
The amount you can contribute to an IRA is considerably smaller than what you can put into a 401(k). However, the annual contribution limits for IRA's have increased recently and will continue to do so. A new "catch-up" provision allows those 50 or older to make larger IRA contributions.
| Year | Age 49 and under | Age 50 and over |
|---|---|---|
| 2003-2004 | $3,000 | $3,500 |
| 2005-2007 | $4,000 | $4,500 |
| 2008-2010 | $5,000 | $5,500 |
* This amount or 100% of your earned income, whichever is less.
Who can deduct their traditional IRA contribution:
If you qualify to deduct your traditional IRA contribution from your current year income, then you get an even bigger tax break than just tax deferral. Whether you qualify or not depends on your income and whether you and/or your spouse participate in a retirement plan at work.
The chart below can help you determine if you're eligible for full or partial deduction. Start with the first column on the left and follow across according to your filing status and whether or not you participate in an employer retirement plan. (If you're not sure, look on your last W-2 form or your paycheck stub.)
| Your Filing Status | Covered by Employer´s Retirement Plan? | Modified Adjusted Gross Income | Deductibility | |
|---|---|---|---|---|
| 2003 | 2004 | |||
| Single | No | Any amount | Any amount | Full Deduction |
| Yes | $33,999 or less | $44,999 or less | Full deduction | |
| $40,000 to $49,999 | $45,000 to $54,999 | Partial deduction | ||
| $50,000 or more | $55,000 or more | No deduction | ||
| Married, filing jointly |
No, neither spouse is covered | Any amount | Any amount | Full Deduction |
| Yes, both spouses are covered | $59,999 or less | $64,999 or less | Full deduction | |
| $60,000 to $69,999 | $65,000 to $74,999 | Partial deduction | ||
| $70,000 or more | $75,000 or more | No deduction | ||
| Yes, one spouse is covered. For covered spouse: | $59,999 or less | $64,999 or less | Full deduction | |
| $60,000 to $69,999 | $65,000 to $74,999 | Partial deduction | ||
| $70,000 or more | $75,000 or more | No deduction | ||
| Yes, one spouse is covered. For non-covered spouse: | $149,999 or less | $149,999 or less | Full deduction | |
| $150,000 to $159,999 | $150,000 to $159,999 | Partial deduction | ||
| $160,000 or more | $160,000 or more | No deduction | ||
Deadlines for making traditional IRA contributions:
You can make your traditional IRA contribution for a tax year anytime before the tax filing due date for that year.* For example, for 2003 you must make your contribution before April 15, 2004.
* A filing extension does not extend the contribution deadline.
When you get to take the money out: If you take your money out of your IRA before you're 59½ years old, you'll not only have to pay taxes but you may get slapped with a 10% withdrawal penalty. There are exceptions to this rule (see blue box). But you should think twice before dipping into your IRA savings for anything other than retirement. You'll pay your current tax rate on the taxable portion and you'll lose out on the continued growth potential of your retirement investment. When you have to take the money out: Uncle Sam wants you to start taking the money out of your IRA at age 70½. How much you're required to take out at a time is based on how much your IRA is worth and your age. The laws can be confusing. When you reach this stage, it's best to consult a tax advisor. |
Traditional IRA distribution Guidelines * RETIREMENT. You can withdraw your traditional IRA earnings without penalty after age 59½. HOME PURCHASE. You can use up to $10,000 (lifetime maximum) of your traditional IRA assets to purchase a first-time home withut penalty. EDUCATION. You can also use your traditional IRA assets without penalty for qualifying higher education expenses, such as tuition, books or supplies, for yourself or a family member. CERTAIN EMERGENCIES. You can access your traditional IRA assets without penalty in case of disability, certain health insurance and medical expenses, and death. * Distribution subject to income taxes.
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| Annuities Compound Interest |
IRA Basic's Long Term Care |
Traditional IRA Health Insurance |
Roth IRA Life Insurance |
IRA Comparisons Rule of 72 |
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| 508 Main Street | 310-615-0940 Phone |
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