IRAs: Questions and Answers

Over the years Congress has rewritten the rules on Individual Retirement Accounts, hoping to spur additional savings by individuals and families through expanded tax incentives. The series of adjustments, along with the introduction of Roth IRAs, left many people with questions about their eligibility to make contributions and about how much they are entitled to contribute.

Below are some of the more common questions we’ve been asked about IRAs.

How much can I contribute?

With both traditional and Roth IRAs, you can make contributions up to the deadline for filing your federal income tax return-not including extensions. For 2007 the maximum contribution will be $4,000; in 2008, $5,000. Starting in 2009, maximums will be adjusted annually for inflation in $500 increments. Plus, if you are age 50 or older, you are entitled to add an additional $1,000 “bonus” contribution to your IRA.

To which IRAs can I contribute?

You can make contributions to an IRA, Roth IRA, or both as long as the total contribution doesn’t exceed the maximum allowed in any year. You may make a contribution to a Roth IRA only if your adjusted grow income (AGI) is no more than $166,000 (marrieds filing jointly) or $114,000 (singles). Partial contributions are allowed for AGIs between $156,000 and $166,000 (marrieds) or between $99,000 and $114,000 (singles).

What happens if my spouse doesn’t work?

As long as you file a joint return, you may set up a spousal IRA, making contributions up to the maximum allowed (including the extra age-dependent $1,000) on behalf of your spouse, even if he or she has no income from employment.

Are my contributions tax deductible?

If you participate in a company retirement plan, you may be able to deduct contributions to a traditional IRA. It all depends upon your AGI. A full deduction is allowed for your 2007 contribution when your AGI is not more than $80,000 (for marrieds filing jointly) or $50,000 (for singles).

Are my Roth IRA contributions deductible?

No. There’s no deduction for a Roth IRA contribution. But, remember, unlike a traditional IRA, earnings from your Roth IRA are tax free. Contributions may be withdrawn tax free as well, if you meet certain requirements.

To find out more, please contact us.