Understanding IRAs

Traditional IRAs

Who Can Contribute?

  • Anyone under the age of 70 ½ who has income from compensation (or who is filing jointly with a spouse who earns compensation)
  • Anyone who has received a distribution from a qualified retirement plan and decides to roll over the proceeds of that plan into an IRA

How Much Can I Contribute?

Year Regular Contribution Over Age 50
2014 $5,500 $6,500
2015 $5,500 $6,500
  • Cannot exceed compensation
  • Reduces contributions that can be made to Roth IRAs

Can I Deduct My Contributions?

  • Contributions to traditional IRAs may be tax deductible. Consult a tax professional or IRS Publication 590

What Are The Tax Advantages?

  • Earnings grow tax-deferred until withdrawn
  • Contributions may be tax deductible

When Can I Withdraw Without Penalty?

Withdrawals after the age of 59 ½ are not subject to the 10% IRS early withdrawal penalty. Other exceptions may apply such as:

  • Qualified higher-education expenses
  • First-time home purchase
  • Disability

For a complete list of exceptions to the penalty, or to determine if your withdrawal qualifies, consult a tax professional.

Not intended as tax advice. Please consult a tax professional.

 

Roth IRAs

Who Can Contribute?

  • Anyone who has income from compensation (or who is filing jointly with a spouse who earns compensation) with the following Modified Adjusted Gross Income (MAGI) from the tax form.
    • Up to $114,000 (Single Filers)
    • Up to $181,000 (Joint Filers)
  • Reduced contributions allowed for higher incomes (up to $129,000 for single filers and $191,000 for joint filers)

How Much?

Year Regular Contribution Over Age 50
2014 $5,500 $6,500
2015 $5,500 $6,500
  • Cannot exceed compensation
  • Reduces contributions that can be made to Traditional IRAs

Can I Deduct My Contributions?

  • Roth IRA contributions must be included in your taxable income and therefore are not tax deductible
  • You may qualify for a savers tax credit. Consult a tax professional to determine if your contribution qualifies

What Are The Tax Advantages?

  • Earnings grow tax-deferred until withdrawn
  • Earnings may be withdrawn tax-free if the account is open for five tax years and withdrawn for a qualified reason: age 59 ½, disability, death or a first-time home purchase*
  • Not required to start withdrawals at age 70 ½

When Can I Withdraw Without Penalty?

  • Regular contributions can be withdrawn tax- and penalty-free at any time
  • After the account has been open for five tax years, earnings can be withdrawn tax- and penalty-free for any of these reasons:
    • Age 59 ½
    • Disability
    • Death
    • First time home purchase*

For a complete list of exceptions to the penalty, and to determine if your withdrawal qualifies, consult a tax professional.

*Lifetime limit for exemption on first-time home-purchase is $10,000
 Not intended as tax advice. Please consult a tax professional.

 

Coverdell Education Savings Accounts (ESA)

Who Can Contribute?

Anyone who has a Modified Adjusted Gross Income (MAGI) from the Federal tax form can contribute.

  • Up to $95,000 for single filers
  • Up to $190,000 for joint filers
  • Reduced contributions may be allowed for a higher MAGI
  • Contributions not allowed after the beneficiary reaches age 18 (except for special-needs beneficiaries)

How Much?

  • $2,000 per child
  • Limit applies to all Coverdell ESAs for the same child

Can I Deduct My Contributions?

Consult a tax professional

What Are The Tax Advantages?

  • Withdrawals for certain qualified education expenses are tax free
  • Special-needs beneficiaries can withdraw funds tax-free to pay for qualified education expenses at any age
  • Qualified education expenses may include tuition, fees, books, computer equipment and technology required for elementary, secondary and post-secondary educations
  • A beneficiary may receive tax distributions from a Coverdell ESA in the same year he or she claims the Lifetime Learning or HOPE Scholarship credits

When Can I Withdraw Without Restriction?

  • Withdrawals are tax- and penalty-free only for qualified expenses (earning are subject to tax and penalty for most other withdrawals.)
  • Funds can be transferred from one child's account to another child's account within the same family

Not intended as tax advice. Please consult a tax professional.

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