Traditional IRA Summary

1. Higher income limits for making tax-deductible IRA contributions for retirement plan participants.
The modified Adjusted Gross Income (MAGI) limit that determines deductibility for individuals participating in an employer's retirement plan increases to $33,000 in 2001 and will rise to $50,000 by 2005. The MAGI for couples increases to $53,000 in 2001 and will rise to $80,000 by 2007. Partially deductible contributions may be made for slightly higher income levels.

What's in it for you:
If you qualify, a deductible IRA contribution that generates immediate tax savings and tax-deferred growth until withdrawal. If you don't participate in a retirement plan at work, an IRA contribution is fully tax-deductible, regardless of your income level.

2. Expanded eligibility for tax-deductible spousal IRA contributions.
Spousal contributions of up to $2,000 now may be fully deductible—even if both spouses work and one is covered by an employer-sponsored retirement plan. Contributions are deductible as long as the family's joint MAGI is under $150,000. (Previously, an at-home spouse could open an IRA only if the employed spouse did not participate in a retirement plan at work.)

What's in it for you:
An opportunity to invest for retirement and reduce your family's tax bill—if you are a non-working spouse, or if you work but you don't participate in an employer retirement plan.

3. Penalty-free early withdrawals for higher-education expenses or a first-time home purchase.
You can withdraw IRA funds for a qualified first-time home buyer expense (up to a lifetime maximum of $10,000) for yourself, your spouse, your child, grandchild, or parent. In addition, you can take withdrawals to pay qualified higher-education expenses—tuition, books, fees, supplies, equipment—incurred by the account holder or related family members.

What's in it for you:
An easier path to making the American dreams of home ownership and a college education realities.

4. Investors over MAGI limits can still make after-tax contributions to a Traditional IRA.

What's in it for you:
Even though you don't get a current deduction, your earnings can compound tax-deferred until you withdraw them at retirement.

Is the Traditional IRA for Me?
The prevailing wisdom holds that you may benefit from the Traditional IRA if:

You are eligible to deduct your contributions.
Your anticipated tax rate in retirement will be lower than your current rate.
You are not covered by a retirement plan at work.

Consider these examples:
Bill is single and participates in a retirement plan at work. He anticipates a 2000 MAGI of $31,500. Because his MAGI falls below the $33,000 phase-out threshold, he can make a fully deductible $2,000 contribution to his IRA.

Pete and Julie are married with a joint MAGI of $110,000 in 2000. Both work, but only Julie participates in her employer's retirement plan. Because she is a plan participant and the couple's MAGI exceeds $60,000, Julie cannot make a deductible contribution. Pete, however, can make a fully-deductible $2,000 contribution under new spousal IRA rules because their joint MAGI is less than $150,000 and he does not participate in an employer-sponsored plan.

Material provided herein is based upon the most recently available information and is subject to change. It is not intended to be complete and should not be used to make investment decisions.

Traditional IRA Summary

Question or Topic

The Answer

Solutions

Engagement Status Letter ~ WARNING!

Navigation

	Engagement Status Letter ~ WARNING!