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