What
is a Traditional IRA?
A Traditional IRA
may be tax-deductible and the earnings grow tax-deferred. Traditional
IRAs are a great place to rollover your employer qualified retirement
savings.
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Am
I eligible for a Traditional IRA?
You can contribute
to a Traditional IRA if:
- you are under 70
1/2 for the year the contribution is made
- you have earned income
equal to or greater than your IRA contribution.
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How
much can I contribute?
Recent tax reform
has increased the allowable annual contribution limits as follows:
Maximum
Contributions |
| Tax
Year |
Annual
Limit |
| 2002-2004 |
$3,000.00 |
| 2005-2007 |
$4,000.00 |
| 2008 |
$5,000.00 |
| 2009
and after |
$5,000.00
+ $500.00 per year for inflation adjustments |
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What
is a catch-up contribution?
For tax years 2002
and after, individuals who attain the age of 50 before the end of
the tax year may be eligible to contribute a "catch-up"
contribution in addition to their normal contribution.
IRA
catch-up Contributions |
| Tax
Year |
Annual
Limit |
| 2002-2005 |
$500.00 |
| 2006 and
after |
$1,000.00 |
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Are
my Traditional IRA earnings taxable?
The earnings on
your Traditional IRA are not taxable until withdrawn.
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Are
all Traditional IRA contributions tax deductible?
The benefit for many people contributing to a Traditional IRA is the
tax deduction on their income taxes. You can deduct Traditional IRA
contributions from your taxes if you
are not an active participant in an employer's retirement plan. Otherwise,
"phase-out" rules apply depending on your annual income:
Contribution
phase out limits |
| Tax
Year |
Single |
Married
Joint |
| 2004 |
$45,000.00-$55,000.00 |
$65,000.00-$75,000.00 |
| 2005 |
$50,000.00-$60,000.00 |
$70,000.00-$80,000.00 |
| 2006 |
$50,000.00-$60,000.00 |
$75,000.00-$85,000.00 |
| 2007 |
$50,000.00-$60,000.00 |
$80,000.00-$100,000.00 |
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Should I contribute if I can't
take a deduction?
Yes, there are
many benefits of making an IRA contribution even if it's not tax
deductible. Your non-deductible contribution:
- has already
been taxed, and will not be taxed again
- grows tax-deferred
until withdrawn
If you are not
eligible to deduct a Traditional IRA contribution, a Roth
IRA may be a good option for you.
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Can
I get a tax credit for my contribution?
For the tax years 2002 through 2006, certain individuals may receive
a non-refundable tax credit (not to exceed $1,000.00) for contributions
made to Traditional or Roth IRAs. If eligible, the tax credit is equal
to the applicable percentage on up to $2,000.00 of a qualified retirement
savings contribution. To be eligible for the tax credit, you must:
- be age 18
before the end of the tax year
- not be a
dependant or full-time student
- have adjusted
gross income within the following limits...
| Adjusted
Gross Income |
| Joint
Return |
Head
of Household |
All
others |
Applicable
percentage |
| Over |
But
not over |
Over |
But
not over |
Over |
But
not over |
| $0 |
$30,000 |
$0 |
$22,500 |
$0 |
$15,000 |
50% |
| $30,000 |
$32,500 |
$22,500 |
$24,375 |
$15,000 |
$16,250 |
20% |
| $32,500 |
$50,000 |
$24,375 |
$37,500 |
$16,250 |
$25,000 |
10% |
| $50,000 |
|
$37,500 |
|
$25,000 |
|
0% |
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When can I withdraw my Traditional
IRA assets?
You will always
have access to your IRA funds. However, there is a 10% early distribution
penalty if you withdraw unless:
- you are over age
59 1/2 (unless you receive equal payments over your life expectancy)
- death or disability
- qualified medical
expenses
- qualified education
purposes
- first time home purchase
(up to $10,000.00)
- due to IRS levy
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Am
I ever required to withdraw my Traditional IRA funds?
Required distributions
begin by April following the year a participant turns age 70 1/2.
Distributions are generally based on a person's life expectancy. Failing
to withdraw the minimum required distribution can result in a penalty.
CFCU can help you calculate your required distributions and even set
them up to occur automatically.
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Can
I move my Traditional IRA or combine Retirement Savings?
You can move your Traditional IRA from one financial institution to
another and you may "rollover" contributions transferred
from employer-sponsored "qualified retirement plans" such
as 401(K)s.
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