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IRA Landscape
The New IRA Landscape
Individual Retirement Advantage
The New Roth IRA
Traditional IRA (Deductible)
Traditional IRA (Nondeductible)
The New Roth IRA
The Taxpayer Relief Act of 1997 created an exciting
new way to save for retirement. Beginning in 1998, the Roth IRA
allows non-deductible annual contributions of up to $2,000 ($4,000
for a married couple) for eligible investors. If you meet the age
and holding-period requirements, funds can be withdrawn from the
Roth IRA entirely free of federal income taxes. Depending on your
personal situation, a Roth IRA may provide a better tax-adjusted
benefit than a deductible IRA.
In order to contribute to a Roth IRA, either you or
your spouse must have earned income at least equal to the amount
of your combined annual contributions, up to $2,000 per person.
You can continue to contribute to a Roth IRA as long as you have
earned income. There is no requirement that your age be less than
70 1/2 , as with a traditional IRA.
Married couples filing jointly must have Adjusted
Gross Income (AGI) not exceeding $150,000 to be eligible for a full
Roth IRA contribution. For single individuals, the corresponding
limit is $95,000. A partial contribution is permitted for married
couples with AGI between $150,000 and $160,000 and single individuals
with AGI between $95,000 and $110,000.
In order for withdrawals from your Roth IRA to be
tax-free, you must have had assets in the account for at least five
years. In addition, distributions must be made after age 59 1/2
, as a result of death or disability, or (once in a lifetime, up
to $10,000) for a qualified first-time home purchase. Distributions
after five years, but before age 59 1/2 , that are used to pay qualified
education expenses are taxable (to the extent that they exceed contributions),
but are exempt from the 10% early-withdrawal penalty.
The Roth IRA imposes no requirements for lifetime
distributions. Therefore, amounts in Roth IRAs are not taken into
account for purposes of minimum-distribution rules affecting traditional
IRAs.
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Traditional IRA (Deductible)
In order to contribute to a traditional IRA, you and/or
your spouse must have earned income at least equal to the amount
of your combined annual contributions, up to $2,000 per person.
Beginning in the year you turn 70 1/2 , you are no longer eligible
to contribute to a traditional IRA.
Deductibility for contributions is based on whether
or not you (or your spouse, if married) are covered by an employer-sponsored
retirement plan. If neither of you works for an employer who maintains
a retirement plan, your contributions are fully deductible--no matter
what your income.
If you are covered by such a plan, you must meet certain
AGI requirements in order to deduct IRA contributions. In 1998,
for married couples filing jointly, if your AGI is below $50,000,
your contributions will remain fully deductible ($30,000 for single
filers). If your AGI is above these limits, you may be eligible
for a partial deduction.
If one spouse is covered by a qualified retirement
plan, but the other is not, the combined AGI limit for fully deductible
contributions for the "uncovered" spouse is $150,000.
With traditional IRAs, withdrawals are taxed as ordinary
income. Withdrawals must begin by age 70 1/2 and must be taken according
to IRS rules, which require withdrawals based on your life expectancy.
Any assets in your IRA at death are still subject to federal income
tax. Withdrawals taken before age 59 1/2 are generally subject to
an additional 10% federal income-tax penalty--except for withdrawals
due to death, disability, qualified higher-education expenses, up
to $10,000 for qualified first-time home purchase, or substantially
equal payments based on your life expectancy under IRS Rule 72(t).
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Traditional IRA (Nondeductible)
Most of the same rules apply to both nondeductible
and deductible traditional IRAs. If you have made nondeductible
IRA contributions, a corresponding proportion of your IRA distributions
will be non-taxable.
Note: The maximum annual contribution to all traditional
and Roth IRAs combined is $2,000 per person.
The new Roth IRA offers a tremendous opportunity for
a tax-favored retirement savings program for many people who are
not eligible to deduct contributions to traditional IRAs. If you
are eligible for a Roth IRA, you should closely evaluate this opportunity
in light of your personal situation.
Investors Security does not provide legal or tax advice.
However, an Investors' Security Financial Consultant can offer an
analysis to assist you and your professional advisors in making
this important decision.
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Self-Directed Traditional IRA
A new brochure available from Investors Security presents
the expanded features of the Traditional IRA, including substantially
increased income limits for spouses’ upfront tax deductions.
Investors who are within five years of retirement, or who expect
their retirement tax bracket to be much lower than their current
bracket, may find the Traditional IRA the best choice.
Roth IRA
The new Roth IRA, funded with after-tax contributions,
offers tax-free accumulation plus tax-free withdrawals in retirement.
Most investors with more than five years to retirement, or who expect
their retirement tax bracket to be close to their current bracket,
will find this their best choice. This brochure includes a brief
discussion of the Roth IRA Conversion.
Roth IRA Conversion
A detailed discussion of the Roth IRA Conversion.
Our custom software analysis will help your Financial Consultant
provide sound advice on whether to convert your traditional IRA
into a Roth Conversion IRA.
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