Key Points:

• Individual Retirement Accounts (IRAs)

• What Is a Roth IRA?

• Rules on Contribution Limits

• Roll Over my IRA or 401(k) to an annuity without paying taxes.

• Strict Rules on Withdrawals From Traditional IRAs 

• Should You Convert to a Roth IRA

• How to open an IRA through zrassetprotection.com?

   

Traditional IRA

Roth IRA

Rules on Contribution Limits(same for both)                                

Contribution limits increased in 2002 and will increase over the next few years. And, if you're over age 50, you may qualify for an additional catch-up contribution.

Year(s)

Individual Contribution Limit

Additional Catch-up Contribution for Age 50+

2005

$4,000

$500

2006-2007

      $4,000

      $1,000

2008-2010

$5,000

$1,000

The contribution limits for married couples are equal to two times the above limits in each plan year. For example, in 2005, a married couple, both of whom are over age 50, may contribute a total of $9,000.              

Availability

All individuals with earned income.

All individuals with earned income, subject to these income limits. For single filers: Up to $95,000 (to qualify for a full contribution); $95,000-$110,000 (partial contribution). For joint filers: Up to $150,000 (to qualify for a full contribution); $150,000-$160,000 (partial contribution).

Contribution Deductibility

You may make a fully deductible traditional IRA contribution if:

• You and your spouse are not participants in an employer-sponsored retirement plan for any part of the year

• You are not a participant, but your spouse is, and your combined Modified Adjusted Gross Income is under $150,000. (Married, Filing Jointly)

• You are a participant in an employer-sponsored retirement plan and you have a combined Modified Adjusted Gross Income that does not exceed the applicable dollar limit in the chart below.

Contributions are not deductible.

Tax Status of Any Earnings                                                                            Back to top

Earnings are tax-deferred until withdrawn.

Earnings are tax-free after five years and after other requirements are met.

The Upside                                                                                                      Back to top

• Tax-deductible contributions, which reduce current income taxes, can be made as long as you fall under certain income limits.

• Even if you or your spouse have a retirement plan at work, you can participate (but not deduct your contributions).

• If you are paying for certain new home expenses or qualified higher education costs, your withdrawals are not subject to the 10% IRS tax penalty. They are, however, still subject to ordinary income taxes.

• You can convert your traditional IRA to a Roth IRA, if your adjusted gross income is $100,000 or less.

• Any earnings grow tax-free.

• Contributions (but not any earnings) can be withdrawn tax- and penalty-free anytime.

• There are no penalties or taxes on earnings withdrawn after your Roth IRA has been opened for five years AND after age 59 1/2, death, disability or for certain home purchases. Furthermore, if you decide to withdraw earnings within five years for certain home purchases, any earnings withdrawn will be taxed, but not subject to penalties. If you decide to withdraw earnings for qualified higher education expenses and have not passed the five-year, 59 1/2 age criteria already mentioned, any earnings withdrawn will be taxed but will not be subject to penalties.

• No mandatory distributions required at age 70 1/2.

• If you die and your account is at least five years old, your heirs inherit income tax free.

• Even if you participate in a plan at work, you can open a Roth IRA (subject to income limits).

The Downside

• In general, withdrawals before age 59 1/2 will be subject to ordinary income tax plus an additional IRS 10% penalty tax for early withdrawal.

• Deductions subject to certain income limits.

• Non-deductible IRA contributions must be tracked by the taxpayer.

• Mandatory distributions begin at age 70 1/2.

• At death, heirs pay income taxes on distributions at their bracket.

• Contributions aren't tax-deductible.

• Eligibility subject to income limits.

Year

Single Filers phase-out range

Joint Filers phase-out range

2005

$50,000-60,000

$70,000-80,000

2006

$50,000-60,000

$75,000-85,000

2007

$50,000-60,000

$80,000-90,000

Conversion to a Roth IRA may be appropriate if:

Leaving assets in a traditional IRA may be appropriate if:

You have 10 or more years to save until retirement.

You have fewer than 10 years to save until retirement.

You have enough money outside of your IRA to pay the taxes.

You will need to tap your retirement account to pay the taxes on a conversion.

Your Adjusted Gross Income is less than $100,000.

Your Adjusted Gross Income is more than $100,000.

You expect to be in the same or higher tax bracket when you retire.

You expect to be in a lower tax bracket when you retire.