Understanding Eligibility and Contribution Limits:

IRAs and similar retirement plans provide investors an incredible advantage - tax-deferred savings. Over the course of many years, your investment growth can be significantly increased because of these savings.

Carefully consider each type of IRA that can help you reach your retirement investment goals.

Income qualifications & eligibility requirements for Traditional and Roth IRAs:

No-Fee Traditional IRAs
(Individual Retirement Accounts)

An IRA account holder with earned income may make yearly contributions up until the year they turn 70½. Some individuals receive a non-refundable tax credit for contributions. Contributions to Traditional IRAs may or may not be deductible. Regardless of whether or not an IRA deduction is received for the contribution, the earnings generated on contributions to Traditional IRAs are tax-deferred. Taxes would become payable when a distribution is completed. Required distributions begin at age 70½ from Traditional IRAs.

Traditional IRAs:

• Often, contributions are 100 percent tax-deductible
• Earnings grow tax-deferred
• Distributions are required to be taken by Traditional IRA holders beginning at age 70½
• Distributions are generally taxable, but are penalty-free if withdrawn under one of the following circumstances:
• Reaching age 59½
• Disability
• Payment for certain health insurance, medical expenses and higher education expenses
• Qualifying first-time home buyer expenses
• Taking equal, periodic payments
• Death (payments to beneficiaries)
• IRS tax levy
• Being a qualified military reservist

 

Modified Adjusted Gross Income (MAGI) Limits for Traditional IRAs:
MAGI Limit for Traditional IRA Contributions Increased

For 2009, if you are covered by a retirement plan at work, your deduction for contributions to a Traditional IRA is reduced (phased out) if your MAGI is:

• More than $89,000 but less than $109,000 for a married couple filing a joint return or a qualifying widow(er)

• More than $55,000 but less than $65,000 for a single individual or head of household

• Less than $10,000 for a married individual filing a separate return

 

For 2009, if your spouse is covered by a retirement plan at work, but you are not, your deduction for contributions to a Traditional IRA is reduced (phased out) if your MAGI is:

• More than $166,000 but less than $176,000

• Less than $10,000 for a married individual filing a separate return

 

No-Fee Roth IRAs
(Roth Individual Retirement Accounts)

While there are numerous benefits to opening a Traditional IRA, a Roth IRA is an option for those investors who wish to receive tax-free qualified distributions. Unlike a Traditional IRA, Roth IRA contributions use after-tax dollars and are based on income limitations.

Anyone, regardless of age, who has earned income that does not exceed the limits set by Congress, can contribute to a Roth IRA. All contributions to a Roth IRA are made with after-tax dollars, grow tax- deferred and may be withdrawn tax-free, therefore no tax deduction may be taken. Unlike a Traditional IRA, contributions can be made past the age of 70½.

Roth IRAs:

• Contributions are not tax-deductible
• Contributions can generally be distributed tax- free at any time
• Distributions are not required by Roth IRA holders, though beneficiaries may be subject to required distributions
• Earnings grow tax-deferred and can be distributed tax-free if the Roth IRA holder first made a Roth IRA contribution at least five years ago AND is made for one of the following reasons:
• Reaching age 59½
• Death
• Disability
• First-time home buyer expenses up to $10,000

 

Modified Adjusted Gross Income (MAGI) Limits for Roth IRAs:
MAGI Limit for Roth IRA Contributions Increased

For 2009, your Roth IRA contribution limit is reduced (phased out) in the following situations:

• Your filing status is married filing jointly or qualifying widow(er) and your MAGI is at least $166,000. You cannot make a Roth IRA contribution if your MAGI is $176,000 or more.

• Your filing status is single, head of household or married filing separately and you did not live with your spouse at any time during the year and your MAGI is at least $105,000. You cannot make a Roth IRA contribution if your MAGI is $120,000 or more.

• Your filing status is married filing separately, you lived with your spouse at any time during the year, and your MAGI is more than zero. You cannot make a Roth IRA contribution if your MAGI is $10,000 or more.

This information is not intended to be legal or tax advice. Please consult a tax, legal, or financial professional with questions.

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