Whats a traditional IRA?
A traditional IRA allows your investment to grow tax-deferred, meaning you pay no taxes on earnings until they’re withdrawn. Typically, you can’t withdraw from a traditional IRA without paying income tax plus a 10% federal penalty tax until you reach age 59½. You must begin withdrawing money by the year after you turn 70½. Anyone with earned income can contribute to a traditional IRA. For some people, contributions to a traditional IRA are tax-deductible—meaning a contribution will reduce their income tax bill. For instance, someone who doesn’t participate in a qualified employer retirement plan can deduct his or her entire contribution to a traditional IRA. Plan participants can deduct contributions only if their modified adjusted gross income doesn’t exceed certain limits, depending on their filing status. In addition, most married couples filing a joint return—even those in which one spouse has little or no compensation—can make IRA contributions. The maximum they can contribute is
A traditional IRA may be tax deductible. Deductibility is based on three factors; (1) active participation in an employer sponsored retirement plan, (2) federal income tax filing status (joint, single, married filing separately); (3) modified adjusted gross income. Earnings are tax deferred, and are taxable at the time of withdrawal. Withdrawals are required at the age of 70 1/2. Contributions up to $5,000 per qualified individual may be made in 2009. Individuals age 50 and older may make additional contributions up to $1000 as a “catch-up” contribution. What’s an EDUCATION SAVINGS ACCOUNT? A Coverdell Education savings account is an account set up for the benefit of a child, to save money on a tax deferred basis, for higher education expenses. Contributions are not tax deductible, but withdrawals from the account for educational expenses are tax free and IRS penalty free. The maximum contribution allowed is $2,000, and must be made by April 15 for the previous year. What’s a SEP plan?
