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COMPARING
YOUR IRA OPTIONS
A
quick reference on the key differences between Traditional, Roth, and
Education IRAs
The Taxpayer
Relief Act of 1997 created a variety of IRA options. Not only did it change
rules for the Traditional IRA, but it also introduced the Roth and Education
IRAs.
The PSC/CUNY
FCU offers a full range of IRA's to meet everyone's needs. Not sure which
type is best for you? Many commonly asked questions are answered below.
If you have any additional questions or need more information, please
Representatives at (212) 302-1954
Traditional
IRAs are more attractive than ever because expanded income limits mean
more people will be able to make tax-deductible contributions. In addition,
penalty-free withdrawals are allowed for qualified higher-education expenses
and for a first-time home purchase.
Contributions
to the Roth IRA or Education IRA aren't tax-deductible, but the accounts
offer the opportunity for tax-free earnings.
To help
you understand the basic differences among these IRAs, we have created
this chart for you. These highlights will help you determine which type
of IRA might be best for you. For additional information on how each type
of account would benefit your specific situation, talk to your tax advisor.
When you are ready to contribute to an IRA, please contact your credit
union. We're here to help you save for your goals with an IRA.
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ROTH IRA
|
| Who can contribute? |
How much can I contribute? |
Who can make deductible contributions? |
What are
the tax advantages? |
Anyone who has income from compensation (or who is filing jointly with a spouse who earns compensation), with the following MAGI:*
 Up to $95,000 for single filers
Up to $150,000 for joint filers
Reduced contributions allowed for higher incomes:
Up to $110,000 for single filers Up to $160,000 for joint filers |
$3,000 for 2004
$4,000 for 2005-2007
For owners age 50 and older, your limits increase to $3,500 for 2004, $4,500 for 2005, and $5,000 for 2006 and 2007
Cannot exceed compensation
Reduces contributions that can be made to Traditional IRA’s |
No one can deduct contributions |
Earnings are tax-free if account is open for five tax years and withdrawn for a qualified reason (age 59 ½, disability, death, or a first-time home purchase**)
Not required to start withdrawals at age 70½
|
TRADITIONAL IRA |
| Who can contribute? |
How much can I contribute? |
Who can make deductible contributions? |
What are
the tax advantages? |
Anyone under age 70½ who has income from compensation (or who is filing jointly with a spouse who earns compensation)
Anyone who has received a distribution from a qualified retirement plan and decides to roll over the proceeds of the plan into an IRA |
$3,000 for 2004
$4,000 for 2005-2007
For owners age 50 and older, your limits increase to $3,500 for 2004, $4,500 for 2005, and $5,000 for 2006 and 2007
Cannot exceed compensation
Reduces contributions that can be made to Roth IRA’s |
Fully deductible contributions:
Single individuals not active in employer retirement plans
Single individuals active in employer retirement lans with MAGI of less than:
$45,000 (2004)
$50,000 (2005-2007)
Married couples with neither spouse active in an employer retirement plan
Married individuals active in employer retirement plans with joint tax returns showing MAGI of less than:
$65,000 (2004)
$70,000 (2005)
$75,000 (2006)
$80,000 (2007-2010)
Married individuals not active in employer retirement plans with spouses who are, as long as MAGI is $150,000 or less
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Earnings grow tax-deferred until withdrawn Contributions may be tax-deductible |
COVERDELL EDUCATION SAVINGS ACCOUNT (ESA)*** |
| Who can contribute? |
How much can I contribute? |
Who can make deductible contributions? |
What are
the tax advantages? |
Anyone who has MAGI:
Up to $95,000 for single filers
Up to $190,000 for joint filers
Some people with higher MAGI may be able to make smaller contributions
Contributions not allowed after the beneficiary reaches age 18 (except for special needs beneficiaries) |
$2,000 per child each year Limit applies to all Coverdell Education Savings Accounts (ESA) for the same child |
No one can deduct contributions |
Withdrawals for certain qualified education expenses are tax-free
Qualified education expenses include tuition, fees, books, computer equipment and technology required for elementary, secondary and post-secondary education A beneficiary may receive tax-free distributions from a Coverdell ESA in the same year he or she claims the Lifetime Learning or HOPE Scholarship tax credits
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Not intended as tax advice. Please consult a tax professional.
*MAGI – Modified Adjusted Gross Income from the federal tax form
**Lifetime limit for exemption on first-time home purchase is $10,000
***Formerly known as the Education IRA
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