1
An individual retirement arrangement, or IRA, is a personal savings plan which allows you to set aside money for retirement, while offering you tax advantages. You may be able to deduct some or all of your contributions to your IRA. Amounts in your IRA, including earnings, generally are not taxed until distributed to you. IRA's cannot be owned jointly. However, any amounts remaining in your IRA upon your death can be paid to your beneficiary or beneficiaries.
To contribute to a traditional IRA, you must be under age 70 1/2 at the end of the tax year. You, and/or your spouse if you file a joint return, must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self–employment. Taxable alimony and separate maintenance payments received by an individual are treated as compensation for IRA purposes.
Compensation does not include earnings and profits from property, such as rental income, interest and dividend income or any amount received as pension or annuity income, or as deferred compensation. What Is a Roth IRA?
Source: www.IRS.gov
http://www.irs.gov/publications/p590/ch02.html#d0e9216
A Roth IRA is an individual retirement plan that, except as explained in this chapter, is subject to the rules that apply to a traditional IRA (defined below). It can be either an account or an annuity. Individual retirement accounts and annuities are described in chapter 1 under How Can a Traditional IRA Be Set Up.
To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is set up. A deemed IRA can be a Roth IRA, but neither a SEP IRA nor a SIMPLE IRA can be designated as a Roth IRA.
Unlike a traditional IRA, you cannot deduct contributions to a Roth IRA. But, if you satisfy the requirements, qualified distributions (discussed later) are tax free. Contributions can be made to your Roth IRA after you reach age 70½ and you can leave amounts in your Roth IRA as long as you live.
Traditional IRA. A traditional IRA is any IRA that is not a Roth IRA or SIMPLE IRA. Traditional IRAs are discussed in chapter 1.
When Can a Roth IRA Be Set Up?
You can set up a Roth IRA at any time. However, the time for making contributions for any year is limited. See When Can You Make Contributions, later under Can You Contribute to a Roth IRA?
Can You Contribute to a Roth IRA?
Generally, you can contribute to a Roth IRA if you have taxable compensation (defined later) and your modified AGI (defined later) is less than:
• $166,000 for married filing jointly or qualifying widow(er),
• $114,000 for single, head of household, or married filing separately and you did not live with your spouse at any time during the year, and
• $10,000 for married filing separately and you lived with your spouse at any time during the year.
What's New for 2008
Source IRS: (http://www.irs.gov/publications/p590/ar01.html#d0e124)
Traditional IRA contribution and deduction limit.
The contribution limit to your traditional IRA for 2008 will be increased to the smaller of the following amounts:
• $5,000, or Your taxable compensation for the year.
If you were age 50 or older before 2009, the most that can be contributed to your traditional IRA for 2008 will be the smaller of the following amounts:
• $6,000, or Your taxable compensation for the year.
Roth IRA contribution limit. If contributions on your behalf are made only to Roth IRAs, your contribution limit for 2008 will generally be the lesser of:
• $5,000, or
• Your taxable compensation for the year.
If you were age 50 or older before 2009 and contributions on your behalf were made only to Roth IRAs, your contribution limit for 2008 will generally be the lesser of:
• $6,000, or
• Your taxable compensation for the year.
1 -Footnote: IRS Topic 451 - The above has been extracted from the IRS website as a generalized description. Please refer to http://www.irs.gov/ for related topics and full descriptions.
Source:
http://www.irs.gov/taxtopics/tc451.html
The information provided herein is general in nature and should not be construed as legal advice. Tower Square Securities, Inc. (TSS) and its representatives do not provide legal or tax advice. Please seek the advice of your legal counsel or tax advisor.
