| QUESTION:I got to thinking about IRAs. I | | | | together.You must begin to take annual |
| think this is how it works-Traditional IRA | | | | minimum distributions from your traditional |
| contributions are from dollars not taxed. | | | | IRA once you reach age 70 1/2. Once you turn |
| Distributions from this type IRA are then | | | | age 70 1/2 you can no longer make |
| taxed upon withdrawal.ROTH IRA contributions | | | | contributions to a traditional IRA, even if |
| are from dollars taxed during the year you | | | | you continue to work and have earned income. |
| make the contribution. Distributions from | | | | Upon your death your beneficiaries will be |
| this type of IRA are not taxed upon | | | | taxed on distributions from an inherited |
| withdrawal.Am I correct?ANSWER:Part I - | | | | traditional IRA.Part II - ROTH IRAYou can |
| Traditional IRAContributions to a | | | | contribute to a ROTH IRA if your MAGI is less |
| "traditional" IRA are either deductible or | | | | than $110,000.00 if Single or Head of |
| non-deductible. If you are an active | | | | Household or $160,000.00 if Married Filing |
| participant in an employer-sponsored pension | | | | Joint.Contributions to a ROTH IRA are made |
| plan, such as a 401(k), a 403(b) or a SEP, | | | | with "after-tax" dollars. ROTH IRA |
| the amount of your traditional IRA | | | | contributions are never deductible. |
| contribution that is deductible is phased-out | | | | Qualified distributions from a ROTH IRA are |
| once your "modified" Adjusted Gross Income | | | | totally tax-free.A qualified distribution is |
| (MAGI) for tax year 2005 reaches $50,000.00 | | | | one that is made after a 5-year holding |
| if filing as Single or Head of Household, or | | | | period, beginning on the first day of the |
| $70,000.00 if married and filing a joint | | | | first year you make a contribution, and is |
| return.Deductible contributions are made with | | | | made after you reach age 59 1/2, or due to |
| "pre-tax" dollars. If all of your | | | | death or disability or for a qualified |
| contributions to all of your IRA accounts | | | | "first-time" home purchase. The earnings |
| over the years were fully deductible, then | | | | portion of a non-qualified distribution is |
| all IRA distributions are fully taxable. | | | | fully taxable and may also be subject to a |
| Amounts that were "rolled-over" to an IRA | | | | 10% penalty.You do not have to begin taking |
| from a pre-tax employer plan like a 401(k) | | | | annual minimum distributions from a ROTH IRA |
| are treated as deductible | | | | when you reach age 70 1/2. You never have to |
| contributions.Non-deductible contributions | | | | touch the money in a ROTH IRA during your |
| are made with "after-tax" dollars. You have | | | | lifetime. You can continue to contribute to |
| already paid income tax on these | | | | a ROTH IRA after you turn age 70 1/2 as long |
| contributions. Accumulated non-deductible | | | | as you have earned income. If you are still |
| contributions make up your "basis" in the | | | | working at age 80 you can contribute to a |
| IRA. If some of your IRA contributions over | | | | ROTH IRA. Beneficiaries do not have to pay |
| the years were non-deductible, then a portion | | | | income tax on distributions from an inherited |
| of any IRA distribution is a tax-free return | | | | ROTH IRA.Copyright (c) 2005 by Robert D Flach |
| of your after-tax contributions. The | | | | LLCRobert D Flach is a tax professional with |
| tax-free portion is determined by a special | | | | 34 tax seasons of experience preparing 1040s |
| formula and is calculated on IRS Form | | | | for individuals in all walks of life. He |
| 8606.Many taxpayers have more than one IRA | | | | writes THE WANDERING TAX PRO weblog ( the |
| account, and each account may have a | | | | free online monthly newsletter STUFF AND SUCH |
| different mix of deductible and | | | | ( and the website which has a wealth of tax |
| non-deductible contributions. However, when | | | | planning and preparation advice and |
| you calculate the tax-free portion of a | | | | information. He also writes and publishes |
| traditional IRA distribution all monies in | | | | THE FLACH REPORT, a quarterly print tax |
| all traditional IRA accounts are lumped | | | | newsletter. |