Traditional IRAs & Roth IRA

A Tax Free Way To Save - The Roth IRA

A Roth Individual Retirement Account (IRA) allows you to save money on a tax-free basis, provided you meet the eligibility requirements and the holding period rules.

The Roth IRA allows for regular nondeductible contributions up to $4,000 in 2007 (provided you have earned income). Roth IRAs present an opportunity to receive tax-free income when the funds are withdrawn. The $4,000 limit is reduced if modified adjusted gross income (AGI) is above $156,000 if filing a joint return, ($99,000 if single) and is eliminated if modified AGI is above $166,000 for joint returns ($114,000 if single). The dollar limit is reduced for amounts contributed to a traditional IRA. In addition to regular IRA contributions, special catch-up contributions can be made annually to both traditional and Roth IRAs if you are at least age 50 by the end of the calendar year. For individuals that meet this age requirement, the regular contribution is increased by $1,000 in 2007. This catch-up contribution is based solely on your age, and is not affected by the amount of contributions you have made to an IRA in the past.

Tax-free, penalty-free distributions of appreciation or earnings may be made from a Roth IRA if held for at least five years and if made on or after age 59½, because of death or disability, or for "first-time homebuyers" subject to a $10,000 lifetime limit.

SUGGESTION: Contributions (not appreciation or earnings) to a Roth IRA can be withdrawn at any time, tax-free and penalty free.

The required minimum distribution rules for traditional IRAs do not apply to Roth IRAs. Distributions from Roth IRAs need not begin at age 70½.

The Traditional IRA

You can establish a traditional IRA whether or not you are covered by any other retirement plan. Wages or net earnings from self-employment can serve as the basis for an IRA contribution. You and your spouse can make IRA contributions of up to $4,000 each in 2007, providing your tax filing status is married/filing jointly and your combined compensation (earnings) are equal to the contributed amount. As a result, a couple can contribute a total of $8,000 in 2007.

You can wait as long as April 15th of the following year (the due date of your individual income tax return) to open an IRA account and make your annual contribution.

Catch-Up Contributions

In addition to regular IRA contributions, special catch-up contributions can be made annually to both traditional and Roth IRAs if you are at least age 50 by the end of the calendar year. For individuals that meet this age requirement, the regular contribution is increased by $1000 in 2007. This catch-up contribution is based solely on your age, and is not affected by the amount of contributions you have made to an IRA in the past.