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IRA
What Is a Roth IRA?


Am I Eligible for a Roth IRA?

How Much Can I Contribute?

Do I Pay Taxes on My Earnings?

What Is a Qualified Distribution?

Does the 10 Percent IRS Premature Distribution Apply if I Withdraw My Money Before Age 59 1/2?

What if I Need Access to My Money Now?

When Do I Have to Start Taking Distributions From My Roth IRA?

What Happens in the Event of My Death?

How Do I Move Funds From a Traditional IRA to a Roth IRA?

When Is the Contribution Deadline for Funding a Roth IRA?

How Do I Open a Roth IRA?

Contribution Formula*


Filing Status

Traditional IRA / Roth IRA
Coverdell Educational Savings Account
________________________________________

Which IRA Is Right for You?
Discover the Benefits of a Roth IRA
Straight Answers to Your IRA Questions
Rollovers, Direct Rollovers, and Transfers

What Is a Roth IRA?
The Roth IRA is a nondeductible account that features tax-free withdrawals for certain distribution reasons after a five-year holding period.

Am I Eligible for a Roth IRA?
Basically, there are two requirements for eligibility to contribute to a Roth IRA: you must have earned income (or your spouse must have earned income) and your modified adjusted gross income (MAGI) cannont exceed certain limits (see table below).

How Much Can I Contribute?
You may contribute any amount up to 100 percent of your compensation or $2,000, which ever is less, as long as your MAGI is within prescribed limits. These prescribed limits are:

Single Filers
MAGI of $95,000 or Less
MAGI Between $95,000 and $110,000
MAGI of $110,000 or More
Full Contribution
Partial Contribution
No Contribution

Married, Joint Filers

MAGI of $150,000 or Less
MAGI Between $150,000 and $160,000
MAGI of $160,000 or More
Full Contribution
Partial Contribution
No Contribution

It's important to note that $2,000 is the aggregate amount that you can contribute to any Roth and / or traditional IRA in a given year. For example, if you contribute $500 to a traditional IRA, the most you could contribute is $1,500 to a Roth IRA for that year.

Do I Pay Taxes on My Earnings?
No (provided you take the earnings as part of a qualified distribution). That's the best part of the Roth IRA. Unlike a traditional IRA, you cannot take a tax deduction for any of the contributions that you make to a Roth IRA. However, when you're ready to take a withdrawal, you pay no taxes on any of the earnings that your money has generated.

What Is a Qualified Distribution?
In order for earnings to be tax free, you must first meet a five-year holding period for your Roth IRA. This period begins with the tax year for which the first contribution is made. After that, any earnings you withdraw for a qualified distribution reason are tax free and IRS penalty free. Qualified distributions include:

  • Distributions made on or after the date on which you attain age 59 1/2,
  • Distributions made to your beneficiary (or your estate) upon your death,
  • Distributions attributable to your being disabled, and
  • Qualified first-time home buyer distributions (up to $10,000).

Does the 10 Percent IRS Premature Distribution Apply if I Withdraw My Money Before Age 59 1/2?
The 10 percent IRS premature-distribution penalty does not apply to earnings you withdraw when you take any of the qualified distributions listed above. In addition, the 10 percent IRS penalty is also waived for certain other distribution reasons. But, for these distributions, taxes on any earnings will apply. Distributions that are subject to taxes (on any earnings withdrawn) but no penalty include:

  • Substantially equal periodic payments,
  • Eligible medical expenses in excess of 7.5 percent of your adjusted gross income (AGI),
  • Medical insurance premiums for eligible unemployed individuals,
  • Qualified education expenses, and
  • Distributions taken within the first five years for any of these reasons: age 59 1/2, death, disability, or first-time home purchase.

Distributions taken for any reason other than a qualified reason or one of the reasons listed here are subject to both taxes and a 10 percent IRS penalty on any earnings withdrawn.

What if I Need Access to My Money Now?
A helpful feature of the Roth IRA is that, for non-qualified distributions, original contribution amounts are returned first. Contributions (as opposed to earnings) are not subject to taxation or the 10 percent IRS premature-distribution penalty when distributed. In other words, you can always get back your principal tax fee and IRS penalty free for any reason.

When Do I Have to Start Taking Distributions From My Roth IRA?
You never have to take distributions from your Roth IRA. That's another benefit of the Roth IRA over traditional IRAs. Assets held in a Roth IRA are not subject to age 70 1/2 required minimum distributions.

What Happens in the Event of My Death?
Your named beneficiary (ies) will receive the entire proceeds of your Roth IRA. The manner in which your beneficiary (ies) receives the funds is determined by the election made by your beneficiary (ies) within the guidelines of the law.

How Do I Move Funds From a Traditional IRA to a Roth IRA?
The law only allows people (single or married) with an MAGI of $100,000 or less to convert their traditional IRA into a Roth IRA. For a conversion to a Roth IRA, the amount converted will be subject to full taxation. However, the funds will not be subject to a 10 percent premature-distribution penalty. Rollovers from a traditional IRA to a Roth IRA are not subject to the one rollover per 12-months rule.

Additionally, the law provides that for conversions to Roth IRAs completed in 1998 the taxes may be paid ratably over a four-year period. After 1998, such conversions are fully taxable in the year of the distribution.

When Is the Contribution Deadline for Funding a Roth IRA?
Roth IRAs for the taxable year can be opened and funded any time between January 1 and the date your tax return is due for the year, excluding extensions. This is normally April 15 of the following year.

How Do I Open a Roth IRA?
Simply see any of our IRA representatives. We will explain the nature of these accounts in more detail and help you complete the simple forms necessary to establish your Roth IRA.

Roth IRA Contribution Eligibility*

Contribution Formula*
A. Modified Adjusted Gross INcome (MAGI) Limit
B. Your MAGI (from IRS Form 1040 or 1040-A)
C. Subract B From A
D. Multiply by
E. Contribution Amount**

Filing Status

Single Married, Filing Jointly
A. $110,000 $160,000
B. $______ $______
C. $______ $______
D. X .1333 X .2
E. $______ $______

*Caution: The amount of your contribution must be coordinated with the amount of your traditional IRA contribution. You are only allowed to contribute $2,000 maximum to both your Roth IRA and your traditional IRA. If the adjusted dollar contribution limit is not a multiple of ten, it is rounded up to the next highest $10 increment. If your partial contribution is less than $200 but greater then $0, you are allowed to claim a contribution of $200.

**The IRS has not released final guidance concerning how you determine your contribution amount; however, the factors provide an easy method to determine the contribution amount pending final IRS guidance. For married couples filing separately, contact your tax adviser.

All information contained herein is intended to act as a guide in giving you an estimate of your allowable contribution limit. Contact your tax adviser for further information.

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This information is effective for tax-year 2006 and thereafter. This information is intended to provide general information concerning IRAs. It is not intended to provide legal advice or to be a detailed explanation of the regulations covering these accounts or how they may apply to your individual circumstances. For specific information, you are encouraged to consult your tax or legal professional. IRS Publication 590, individual Retirement Arrangements, and the IRS' web site, www.irs.gov , may also provide helpful information.

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