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IRA's are always in fashion.

Return to Investing


Second only to 401k's in maximizing your return, IRAs provide a good retirement investment.  Unlike 401k's you don't get a company contribution for your investment; however, you do get tax advantages.  Depending upon your salary, these advantages could be significant.

Traditional Versus Roth IRAs

There are two types of IRA's, Traditional and Roth, and their characteristics are quite different.  The following table illustrates this:

Features
Traditional IRA
Roth IRA
Who can contribute
Anyone with Earned Income who will be less than 70 1/2 years old at year end
Anyone with Earned Income whose Adjusted Gross Income does not exceed a certain annual limit.
Is the contribution tax deductible?

Contributions may be deductible, depending on income.

No, it is never tax deductible.
Does the investment grow tax free?
Yes, but you must pay taxes an any pre-tax contribution when you withdraw funds.
Yes, and no taxes are paid on withdrawals.
When can money be withdrawn?

Anytime; however, a 10% additional tax generally applies if you withdraw or use IRA assets before you are age 59 1/2.

Any time after a 5-yr. waiting period; however, a 10% additional tax generally applies if you withdraw or use IRA assets before you are age 59 1/2.

When are mandatory withdrawals required?

You must receive at least a minimum amount for each year starting with the year you reach age 70 1/2.

Never

Annual Contribution Limits are the same for Traditional and Roth IRAs:

Tax Year

Normal

Catch-up

Total

2007

$4,000

$1,000

$5,000

2008 - 2012

$5,000

$1,000

$6,000

2013

$5,500

$1,000

$6,500

2014

$5,500

$1,000

$6,500

2015

$5,500

$1,000

$6,500

2016

$5,500

$1,000

$6,500

2017

$5,500

$1,000

$6,500

2018

$5,500

$1,000

$6,500


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Contributions to a Roth IRA

The amount that you can contribute to a Roth IRA is based on your Modified Adjusted Gross Income (MAGI):

 

2017 

2018

Filing Status

MAGI

Allowed Contribution

MAGI

Allowed Contribution

Married filing jointly or qualifying widow(er)

$186,000

Up to the Limit

$189,000

Up to the Limit

$186,000 but
‹ $196,000
A Reduced Amount
$189,000 but
‹ $199,000
A Reduced Amount
$196,000
Zero
$199,000
Zero
Married filing separately and lived with spouse at any time during the year
$10,000
A Reduced Amount
$10,000
A Reduced Amount
$10,000
Zero
$10,000
Zero
Single, head of household, or married filing separately and did not live with spouse at any time during the year
$118,000

Up to the Limit

$120,000

Up to the Limit

$118,000 but
‹ $133,000
A Reduced Amount
$120,000 but
‹ $135,000
A Reduced Amount
$133,000
Zero
$135,000
Zero

Tax Deduction for Contributions to a Traditional IRA

If you are not covered by a retirement plan at work and are:

  • Single, head of household, or qualifying widow(er) or
  • Married filing jointly or separately with a spouse who is not covered by a plan at work, then

You can take a full deduction up to the amount of your contribution limit. 

If you are covered by a tax-qualified plan, contributions to a Traditional IRA are deductible based on your Modified Adjusted Gross Income (MAGI):

Tax Year

MAGI Amount

Fully Deductible if This Amount or Lower

Partially Deductible if Between These Amounts

Not Deductible if This Amount or Higher

Tax Deductibility for single tax filers (other than a married individual filing a separate return):

2017

$62,000

$62,001-$71,999

$72,000

2018

$63,000

$63,001-$72,999

$73,000

Married Filing a Joint Return − Tax Deductibility for Covered Spouse Contributions:

2017

$99,000

$99,001-$118,999

$119,000

2018

$101,000

$101,001-$120,999

$121,000

Married Filing a Joint Return − Tax Deductibility for Non-Covered Spouse Contributions:

2017

$186,000

$186,001-$195,999

$196,000

2018

$189,000

$189,001-$198,999

$199,000

If you are a married individual filing a separate return, your deduction is phased out if your MAGI is less than $10,000.