Roth IRA vs. Traditional IRA
Roth IRA
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Traditional IRA
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Contributions
Contribution limit: $2000, less any contributions to a traditional IRA
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Contributions
Contribution limit: $2000, less any contributions to a Roth IRA
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The $2000 limit is phased out as AGI increases from
- $150,000 to $160,000 in the case of a married couple filing jointly
- $95,000 to $110,000 in the case of a single filer
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The $2000 limit is phased out for active participants in employer-sponsored retirement
plans.
The phase out currently applies to ...
- couples filing jointly with AGI of $50,000 to $60,000 (1998 limits)
- single filers with AGI of $30,000 to $40,000 (1998 limits)
AGI numbers will increase annually, until they are doubled in year 2007
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Participation in an employer sponsored plan does not affect eligibility
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Contributions may be made after age 70 1/2, no mandatory withdrawals.
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No contributions may be made after age 70 1/2, mandatory withdrawals begin.
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Taxes
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Contributions are not tax deductible.
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Contributions are tax deductible.
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"Qualified Distributions" are not taxable
A "qualified distribution" is a distribution:
- made after age 59 1/2
- made to a beneficiary after the taxpayer's death
- made because the taxpayer is disabled
- used by a first-time home buyer to acquire a principal residence
No payment can be a qualified distribution unless it is made after the 5-taxable-year period
beginning with the taxable year in which the taxpayer first contributed to a Roth IRA.
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All distributions are taxed as ordinary income at the taxpayers current tax rate.
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Income tax and 10% early withdrawal penalty for earnings withdrawn before age 59 1/2.
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10% early withdrawal penalty for any money withdrawn before age 59 1/2. (unless paid
out in substantially equal payments over life expectancy)
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