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Traditional IRA
Who is eligible to contribute?
Individuals and couples with earned income are eligible to contribute to an IRA on a tax-deductible basis if they are not participating in a qualified retirement plan. Participants in a qualified retirement plan can still contribute, but not on a tax-deductible basis.
 
How much can I contribute?
The IRA allows an individual to make a contribution of 100% of earned income up to $5,500 if under age 50 and $6,500 if over age 50 annually. All contributions must be made by the individual’s tax filling deadline, normally April 15 th.

When can I make withdrawals from any IRA?
Although assets may be withdrawn at any time, only distributions, which meet the following requirements, are exempt from the 10% early distribution penalty, federal income tax, and more than likely, state income taxes. The withdrawal must be due to:
  • Attainment of age 59 ½
  • Death
  • Disability


If you need to withdraw funds prior to meeting the above requirements, any distribution of earnings will be subject to taxes and the early distribution penalty.


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Roth IRA
Who is eligible to contribute?
Individuals and couples with Adjusted Gross Income (AGI) below $110,000 and $160,000, respectively, are eligible to contribute to a Roth IRA, regardless of age.

How much can I contribute?

The Roth IRA allows an individual to make non-deductible contribution of 100% of earned income up to $5,500 if under age 50 and $6,500 if over 50 annually. All contributions must be made by the individual’s tax filing deadline, normally April 15 th.

When can I make withdrawals from any Roth IRA?

Although assets may be withdrawn at any time, only distributions, which meet the following requirements, are exempt for the 10% early distribution penalty, federal income tax, and more than likely, state income taxes. The withdrawal must be due to:

  • Attainment of age 59 ½
  • Death
  • Disability
  • First home purchase for IRA owner, their spouse or their dependents
    (lifetime limit of $10,000)
If you need to withdraw funds prior to meeting the above requirements, any distribution of earnings will be subject to taxes and the early distribution penalty. However, distributions are deemed to come first from principal, which is not subject to taxation or penalty.

Another attractive retirement planning feature of the Roth is that there are no required minimum distributions from a Roth IRA at age 70 ½.

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Educational IRA
What is a Coverdell Education Savings Account?
A Coverdell Education Savings Account (CESA) is a type of tax-preferred savings and investment account authorized by Internal Revenue Code section 530 to encourage taxpayers to save for education expenses.

What are the basic concepts which apply to CESA?
If you are eligible, you may make contributions, within certain limits, on behalf of a designated beneficiary, such as a child or grandchild. Funds may only be contributed if the person has not attained the age of 18. These contributions are made with after-tax dollars. That is, there is not upfront deduction for the contribution. The earnings realized by a CESA are not presently taxed, and if used to pay the qualified education expenses of the designated beneficiary, will never be taxed.

With the recent passage of the Economic Growth and Tax Relief Reconciliation Act of 2001, CESA will play a much more prominent role in a family’s financial planning. The following law changes go into effect for 2002 and subsequent years:

  • The contribution limit will increase to $2,000 per year per designated beneficiary;
  • Now available for most education needs
    pre-school, elementary, junior high, and senior high
  • Expansion so that expenses for purchasing a computer, internet services, and software will generally qualify as a “qualifying expense” for income tax purposes.

How do I start a CESA for my grandchild or another child?
Just come in and talk with us or give us a call. We will be happy to discuss the benefits of the CESA with you and explain our investment options.

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