|
 |
The Basics of IRAs... Page
3
continued
Tax Deductions
The contributions you make to an IRA may be tax-deductible depending on such factors as
filing status, adjusted gross income, and whether you're covered by a retirement plan at
work or not. Contributions to non-deductible Traditional IRAs or Roth IRAs are never
deductible.
If you're one of the lucky few that are able to deduct contributions at tax time (and you
meet the requirements of a traditional IRA), you should consider how much you'll benefit
-- in the 28% tax bracket alone, you'll save at least $560 in taxes for a $2,000
contribution. That's money in your pocket. Money that would have otherwise gone to the
IRS.
Withdrawals
1. Traditional IRAs
Generally, you may begin withdrawing money from your Traditional IRA after age 59
1/2. Any withdrawals made earlier than this age will be subject to a 10% penalty. This
penalty is waived, however, if you're disabled, you die, you need the money for medical
bills, higher education expenses, or a first time home purchase ($10,000 max). If you
don't start the withdrawal process by age 70 1/2, you'll also be penalized for the money
you should have taken -- this is known as a "minimum withdrawal schedule".
Contributions to your Traditional IRA that are tax-deductible will be taxed on
normal withdrawal -- both contributions and earnings from your IRA will be taxed at your
highest tax bracket.
Contributions to your Traditional IRA that are non-deductible will not be taxed
on normal withdrawal -- earnings, however, will be taxed at your highest tax bracket.
2. Roth IRAs
You may begin withdrawing money from your Roth IRA anytime after age 59 1/2. Contributions
can be withdrawn anytime tax-free, penalty-free, and without restriction.
If you withdraw earnings prior to age 59 1/2 and before five years after your account has
been established, you'll be taxed (and penalized). Earnings can be withdrawn tax-free,
however, if your account has been established for at least five years and you are: age 59
1/2, disabled, dead, or using the withdrawal for a first-time home purchase ($10,000
max).
MORE » |
