IRA Terminology

Modified Adjusted Gross Income (MAGI): Your income (salary, dividends, capital gains, etc.) less certain items you can subtract (401(k) plan contributions, deductible IRAs, etc.). Your MAGI is an important starting point in determining if you can contribute to an IRA.

Back-loaded IRA: An IRA that offers tax benefits when you take money out rather than when you put money in. The Roth IRA is back-loaded because after-tax money goes into the account and tax-free money comes out.

Conversion: Transferring assets from a Traditional IRA to a Roth IRA. Careful tax planning is required to help you determine if a conversion is the right move for you.

Points to Remember:
  • You can contribute to both a Traditional IRA and a Roth IRA, but your total contribution can't exceed $2,000 per year.
  • Your tax rate in retirement will be a critical factor in determining which IRA you choose.
  • You can fund an Education IRA in addition to contributing $2,000 to a retirement IRA.
  • While you may make certain early withdrawal from your IRA without incurring the 10 percent penalty on premature distributions, the money you withdraw may be taxed as ordinary income.
  • Even if you aren't eligible for a tax-deductible Traditional IRA or a Roth IRA, you still have an option. You can contribute to a non-deductible Traditional IRA in which earnings can grow tax-deferred.

What You Can Do Today
Meet with Bob Parrish CPA your tax adviser & financial professional to discuss which IRA best fits into your overall retirement plan. Consider important factors that will affect your decision, including:
  • The amount you already have invested in deductible Traditional IRAs.
  • Your participation in a company-sponsored retirement plan.
  • The length of time before you retire.
  • Your current tax rate.
  • Your anticipated tax rate in retirement.
  • Other education investment alternatives you are considering.