“Tax deductions now or tax-free
withdrawals later?"
Roth versus Traditional IRAs
Submitted By: The Green Group
Branch Name: Morgan Stanley, Garden City Branch
Phone Number: (516) 683 -3125
Traditional and Roth IRAs are both tax-deferred ways to invest
for your retirement. A detailed look at each can help you decide
which may be better suited for you. There are certain rules that
apply to both types of IRAs:
- To contribute, you must have
received taxable compensation for the year.
- The annual contribution
limit for 2003 is $3,000. If you own more than one IRA, it
applies to the combined total for your traditional and Roth
IRAs.
- Those 50 and older can make
an additional $500 catch-up contribution for 2003.
- If you withdraw money before
age 59 1/2, a 10 percent tax penalty applies to the taxable
portion of the distribution.
Traditional IRA Specifics
The advantage of traditional IRAs is the tax deductibility of
the contributions. Although you may contribute up to the annual
maximum no matter how high your income, you may not be able to
deduct the entire amount of your contribution. If you or your
spouse participate in an employer-sponsored plan, your deduction
may be limited following the income guidelines in the
deductibility phase-out rules. Contributions stop when you reach
age 70 1/2, when annual required distributions begin.
Withdrawals (except for nondeductible contributions) are taxable
as ordinary income.
Roth IRAs
The big attraction of Roth’s is that withdrawals are tax free
after you reach age 59 1/2 and your Roth is five years old.
Distributions are never required and you can contribute past age
70 1/2 if you have taxable compensation. Contributions are not
deductible and eligibility to contribute is subject to the Roth
income phase-out guidelines.
Converting to a Roth
You may convert all or part of a traditional IRA to a Roth if
your adjusted gross income for the year does not exceed $100,000
and you are not married and filing separately. The amount
converted is taxable as ordinary income for the year unless it
is from nondeductible contributions.
To Learn More
For help deciding whether a Traditional or Roth IRA is
appropriate for you, please call us at (516) 683 -3125 or
toll-free at (800) 473-0031. We would be more than happy to come
meet with you to answer any of your questions.
This article does not
constitute tax or legal advice. Consult your tax or legal
advisor before making any tax- or legally-related investment
decisions. This article is published for general informational
purposes only and is not an offer or solicitation to sell or buy
any securities or commodities. Any particular investment should
be analyzed based on its terms and risks as they relate to your
individual circumstances and objectives. |
