|Take another look at individual retirement accounts|
|You may have considered an individual retirement
account (IRA) at some time in the past. But perhaps you didn't qualify for tax-deductible
contributions, or you couldn't contribute much because you were a stay-at-home spouse. Or
maybe you just didn't want to lock your money away for so many years. Well,
under today's tax rules, everyone should take another look at the IRA.
First of all, there's the Roth IRA. Contributions to a Roth IRA aren't tax-deductible, but principal and earnings are never again subject to tax if certain rules are met. Married couples qualify for a Roth IRA if joint income is $150,000 or less ($95,000 or less for singles). If you've been unable to make a deductible IRA contribution because your income was too high, a Roth IRA could be the vehicle you've been waiting for.
Conversion to a Roth
If might make sense for you to convert your existing IRA to a Roth IRA. A conversion lets you enjoy the long-term benefits of a Roth IRA. To be eligible for a penalty-free conversion, your adjusted gross income must be $100,000 or less (married or single), and you must pay regular income tax on the amount transferred from your existing IRA.
Other IRA Rules
Whether or not you qualify for a Roth, today's tax laws make the traditional IRA worth reconsidering.
If you are not covered by an employer's plan, a traditional IRA contribution is deductible no matter how much you earn. Your nonworking spouse may also make a fully deductible contribution of up to $2,000.
If you are single and covered by a pension plan at work, your deductible IRA starts to phase out when your income for 2000 reaches $32,000, becoming fully nondeductible at $42,000.
If you are married and covered by an employer plan, the 2000 phase-out range for tax-deductible IRA contributions is $52,000 to $62,000 of income.
One spouse's company coverage doesnt make the other spouse ineligible for a deductible IRA until joint income reaches the phase-out range of $150,000 to $160,000.
You may avoid penalties (but not
necessarily income tax) on premature withdrawals from your regular or Roth IRAs if you use
the withdrawals for certain purposes -- for example, to pay qualified higher education
expenses or to buy a first-time home.
Be sure to call or send us an e-mail if you need help sorting through the rules to decide how to best use IRAs in your situation.
|© This material is copyrighted.|
|Kenneth D. Eichner P.C.
Certified Public Accountants
Houston, TX 77042