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IRAs

An Individual Retirement Account is an excellent tool for retirement saving. Unlike most investments, contributions may be tax deductible and will grow either tax-deferred or tax-free.

 

Traditional IRA

Qualifications

Must have earned income and not have reached age 70½ by the end of the year.

Maximum Contributions

Yes. Contributions up to the limit are fully tax deductible if you are not an active participant in a retirement plan. Otherwise phaseout rules apply.

Penalties for Early Withdrawal

None if:

  • Over 59½ 
  • Death or disability
  • Qualified medical expenses
  • Certain health insurance
  • Qualified college expenses
  • 1st time home purchase (up to $10,000)
  • Due to IRS levy

Required Distributions

Must begin by April following year participant turns 70½.

Contributions After Age 70½ 

Not Allowed.

 

Roth IRA

Qualifications:

Must have earned income. There are no age restrictions

Tax Status of Earnings

Not taxed. Earnings grow tax-free.

Contribution Restrictions

Yes. Contributions phase out.

Tax Deduction

No.

Penalties for Early Withdrawal

None if:

  • Over 59½ 
  • Death or disability
  • Qualified medical expenses
  • Certain health insurance
  • Qualified college expenses
  • 1st time home purchase (up to $10,000)

Required Distributions

Only after death of the participant.

Contributions After Age 70½ 

Allowed.

 

Coverdell ESA (Formerly Education IRA)

Qualifications:

The designated beneficiary must be an individual under the age of 18. Beginning in 2002, the age 18 limitation will not apply to any designated beneficiary with special needs.

Maximum Contributions:

Contributions do not count against the limits for IRAs.

Tax Status of Earnings

Not taxed. Earnings grow tax-free.

Contribution Restrictions

Yes.

Tax Deduction

No.

Penalties for Early Withdrawal

None if for payment of qualified education expenses

Required Distributions

Must be complete 30 days after beneficiary reaches age 30 or dies.

Contributions After Age 70 ½ 

Allowed.