An Individual Retirement Account (IRA) is a special savings plan authorized by the Federal
government to help you accumulate funds for your retirement.
Below is a list of frequently asked questions. Click the question to see more information.
Who Is Eligible To Contribute To An IRA?
I Am Not An Active Participant In An Employer-Sponsored Retirement Plan. May I Deduct IRA
Contributions?
I Am An Active Participant In An Employer-Sponsored Retirement Plan. May I Deduct IRA
Contributions?
Are IRA Earnings, Such As Interest and Dividends,Tax-Deferred?
How Much Can I Contribute To An IRA?
"CATCH-UP" CONTRIBUTIONS FOR PEOPLE 50 AND OLDER
Must I Contribute the Full Amount Each Year?
When Can I Make Withdrawals?
Can I Make Earlier Withdrawals?
When Are Taxes Paid On IRAs?
What Is The Deadline For Contributing To An IRA?
Who Is Eligible To Contribute To An IRA?
Every individual who has earned income or received alimony may contribute to an IRA. Income from
other sources such as investments or inheritances does not qualify. Contributions may not be
made for or after the year in which you reach age 70 1/2.
I Am Not An Active Participant In An Employer-Sponsored Retirement Plan. May I Deduct IRA Contributions?
If you are not an active participant in an employer sponsored pension or profit-sharing plan,
you can deduct 100% of your IRA contribution regardless of income level. If your spouse is an
active participant and your joint income is $150,000 or more you cannot fully deduct your IRA
contribution. Partial deductions are permitted for joint incomes between $150,000 and $160,000.
I Am An Active Participant In An Employer-Sponsored Retirement Plan. May I Deduct IRA Contributions?
Your IRA contribution may still be fully or partially deductible, depending on your income
level. Please contact us for more information.
Are IRA Earnings, Such As Interest and Dividends, Tax-Deferred?
All the earnings you accumulate in your IRA remain tax-sheltered until withdrawn.
How Much Can I Contribute To An IRA?
NOTE: Legislation in June of 2001 increased annual
Traditional IRA contributions as follows:
Year 2004 $3,000
2005 - 2007 $4,000
2008 and thereafter $5,000
YEAR 2004
You can contribute all or part of compensation, up to:
- Individual Taxpayer - $3,000
- Married Taxpayer - $6,000 where both spouses have earned income (each spouse can
contribute up to $3,000 each).
- Spousal IRA - $6,000 for married taxpayers filing jointly. (Yearly contributions may be
divided between the accounts, provided the total contribution does not exceed $6,000 and
neither account is allocated more than $3,000). Total yearly contribution that can be made
by an individual to all IRAs, Traditional (deductible, nondeductible) and Roth IRAs, is
$3,000 not counting rollover contributions.
YEAR 2005 - 2007
You can contribute all or part of compensation, up to:
- Individual Taxpayer - $4,000
- Married Taxpayer - $8,000 where both spouses have earned income (each spouse can
contribute up to $4,000 each).
- Spousal IRA - $8,000 for married taxpayers filing jointly. (Yearly contributions may be
divided between the accounts, provided the total contribution does not exceed $8,000 and
neither account is allocated more than $4,000). Total yearly contribution that can be made
by an individual to all IRAs, Traditional (deductible, nondeductible) and Roth IRAs, is
$4,000 not counting rollover contributions.
"CATCH-UP" CONTRIBUTIONS FOR PEOPLE 50 AND OLDER
To make up for lost time, workers 50 and older before the end of the taxable year can make
additional contributions above the new maximum limits as follows:
- $500 a year (years 2004 - 2005)
- $1,000 a year (year 2006 & thereafter)
Must I Contribute the Full Amount Each Year?
No. You can contribute any amount your budget allows, either in one or more contributions. In
fact, if you choose, you need not make any contributions in a given year.
When Can I Make Withdrawals?
Withdrawals (distributions) are permitted any time after age 59 1/2 but must start by April 1st
following the year in which the participant reaches the age of 70 1/2. After age 59 1/2, you may
make withdrawals even if you continue to earn income. It is not necessary to be retired in order
to make withdrawals.
Can I Make Earlier Withdrawals?
There is a 10% penalty for withdrawing all or any part of the account before age 59 1/2, with the following exceptions:
- in the event of death or total disability.
- you may withdraw nondeductible contributions (earnings on these contributions will be taxable).
- as a qualified first-time homebuyer you may withdraw up to $10,000 during your lifetime.
It must be used within 120 days to pay costs (including reasonable settlement, financing or
other closing costs). This exception is available for expenses of the individual, spouse,
child, grandchild, or ancestor of such individual or spouse.
- if you use the withdrawal to pay qualified higher education expenses.
- if you use the withdrawal to pay for medical expenses in excess of 7.5% of your adjusted
gross income or to purchase health insurance after receiving unemployment compensation for
more than 12 weeks.
- if the funds are paid out in a series of payments made over your life expectancy (or the
joint life expectancy of you and your beneficiary).
When Are Taxes Paid On IRAs?
When you begin making withdrawals, you will be taxed on only the amount you withdraw each year
on which taxes have not previously been paid. The remaining funds continue to accumulate
tax-deferred earnings. In all probability, you will benefit by the fact that you will be in a
lower tax bracket than at the time you made your contribution.
What Is The Deadline For Contributing To An IRA?
You can open or make contributions to your IRA any time up to and including the due date of your
tax return for the previous tax year, normally April 15th.
