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IRAs: Traditional, Education, Roth
Individual retirement plans are more powerful than ever, and you're eligible to contribute more to individual retirement accounts (IRAs) than ever before. With an IRA, you can invest your money in a variety of savings and investments such as share certificates, mutual funds, and individual stocks and bonds.
You can have more than one IRA, even two accounts of the same type. But the more you have, the more you have to manage, so experts recommend keeping the number of accounts to a minimum. Rollovers are also possible from one IRA into another.
Traditional and Roth IRAs and KEOGH retirement accounts at NCUA-insured credit unions, such as Capitol Region FCU, are now insured up to $250,000.
An IRA summary follows. For more information, contact our IRA Specialist today.
Traditional IRA
- Offers tax-deferred earnings and possibly tax-deductible contributions if you meet the requirements. If you and/or your spouse actively participate in an employer-sponsored retirement plan, you can deduct contributions only if your income is below certain limits. If you are not participating in a retirement plan, your traditional IRA contribution is deductible regardless of income. Ask your tax advisor for details.
- You can contribute if you have earned income and you will not reach age 70 1/2 by the end of the year. If you file a joint tax return, you can treat your spouse's income as your own.
- You can contribute to a traditional IRA, an employer-sponsored retirement plan, and a Roth IRA in the same year.
- When you withdraw from a traditional IRA, your withdrawal will be treated as taxable income.
- If you make a withdrawal before age 59 1/2 you generally must pay a 10% tax on early distributions. There are exceptions, such as rollovers.
- You must begin taking required minimum distributions at age 70 1/2.
Roth IRA
- Contributions are not tax-deductible, however, you can withdraw contributions and earnings from a Roth IRA tax-free.
- To contribute to a Roth IRA, joint filers' modified adjusted gross income must be less than $160,000 and less than $110,000 for single filers.
- You can withdraw funds tax-free before retirement under certain conditions: if your funds have been in your account for at least five years, you're older than age 59 1/2, you buy a first-time home, or if you become disabled or die.
- You're not required to start taking minimum distributions when you reach age 70 1/2 as with a traditional IRA. You can let your money continue to grow tax-free for as long as you like.
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2010 Combined Traditional and Roth IRA Contribution Limits
If you are under 50 years of age at the end of 2010: The maximum contribution that you can make to a traditional or Roth IRA is the smaller of $5,000 or the amount of your taxable compensation for 2010. This limit can be split between a traditional and a Roth IRA but the combined limit is $5,000. The maximum contribution to a Roth IRA and the maximum deductible contribution to a traditional IRA may be reduced depending upon your modified adjusted gross income (modified AGI).
If you are 50 years of age or older before 2011: The maximum contribution that can be made to a traditional or Roth IRA is the smaller of $6,000 or the amount of your taxable compensation for 2010. This limit can be split between a traditional and a Roth IRA but the combined limit is $6,000. The maximum contribution to a Roth IRA and the maximum deductible contribution to a traditional IRA may be reduced depending upon your modified AGI.
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