personal account that an employee can set up with a deposit that is tax deductible up to $3000 a year (if 50 years or older, the contribution is $3500). A working taxpayer not covered by another retirement plan may deduct IRA contributions. Also a taxpayer may deduct IRA contributions if adjusted gross income (AGI) is less than a certain amount. IRA funds are available to their depositors, penalty-free, at the age of 591.2.or sooner in cases of death or disability. Early withdrawal of deductible contributions for any other reason will cost the taxpayer a penalty.
tax-deferred retirement account allowing an individual to contribute a pre-set amount annually (up to $4,000 in 2006, or $8,000 for a married couple filing jointly) from personal income. The maximum individual contribution will rise to $5,000 in 2008 and afterward will be indexed according to inflation. Individual taxpayers over age 50 are permitted an additional $1,000 a year "catch up" IRA contribution. IRA contributions are tax deductible regardless of income if neither the taxpayer nor their spouse is enrolled in an employer-sponsored pension plan. Individuals covered by a company retirement plan may deduct IRA contributions if adjusted gross income is below $53,000 on a joint return or $33,000 on a single return. Couples with incomes between $53,000 and $63,000 and single taxpayers with incomes between $33,000 and $43,000 are allowed partial deductions. After 2007, the income limit for fully deductible IRA accounts will rise to $50,000 for single taxpayers and $80,000 for married couples. Individuals barred from making deductible contributions may open nondeductible IRA accounts and gain the benefit of tax deferral on earnings.
Withdrawals from an IRA before age 591/2 are generally subject to a 10% penalty tax, although certain types of withdrawals are exempted. Individuals may contribute annually to an IRA account until age 701/2. After reaching that age, individuals must begin withdrawing funds according to an IRS schedule based on life expectancy. IRA accounts may be invested in many different types of investments, including stocks, bonds, certificates of deposit, and mutual funds.
trust fund to which any individual employee can contribute up to $4,000 per year in 2005-2007, $5,000 in 2008, indexed for inflation beginning in 2009. The maximum annual catch-up contributions is $1,000 after 2005. Income level and eligibility for an employee's pension plan determine whether or not the employee's contribution is tax-deductible. The employee may not take a deduction for an IRA contribution if he or she is an active participant in any qualified plan and his or her Modified Adjusted Gross Income (MAGI) is $60,000 or more for a single individual or $80,000 or more for married couples filing jointly.
traditional fund under the tax reform act of 1986 into which any individual employee can contribute up to $2000. Unemployed spouses may contribute up to $2000 even if the working spouse does not make a contribution. However, income level and eligibility for an employee pension plan determine whether or not the employee's contribution or a percentage is tax deductible. The following are the circumstances of contribution to an IRA and the tax consequences under the current law:
Note that relevant employee pension plans include 401(k), 403(b), Keogh, and defined benefit plan. (There is no requirement for the employee to have benefits vested.) IRA earnings remain tax deferred. Withdrawals prior to age 59½ are subject to a 10% penalty except for disability, death, to pay qualified higher education expenses, the purchase of a first home (there is a $10,000 lifetime limit on withdrawals for first-time home buyers), or to pay qualified medical expenses. Under the new law, each phase-out range has increased from $50,000 to $60,000 in 1998 to $80,000 to $100,000 in 2007 for married taxpayers filing jointly; and from $30,000 to $40,000 in 1998 to $50,000 to $60,000 in 2005 for single taxpayers.
