| QUESTION:I got to thinking about IRAs. I think this is | | | | once you reach age 70 1/2. Once you turn age 70 1/2 |
| how it works-Traditional IRA contributions are from | | | | you can no longer make contributions to a traditional |
| dollars not taxed. Distributions from this type IRA are | | | | IRA, even if you continue to work and have earned |
| then taxed upon withdrawal.ROTH IRA contributions | | | | income. Upon your death your beneficiaries will be |
| are from dollars taxed during the year you make the | | | | taxed on distributions from an inherited traditional |
| contribution. Distributions from this type of IRA are not | | | | IRA.Part II - ROTH IRAYou can contribute to a ROTH |
| taxed upon withdrawal.Am I correct?ANSWER:Part I - | | | | IRA if your MAGI is less than $110,000.00 if Single or |
| Traditional IRAContributions to a "traditional" IRA are | | | | Head of Household or $160,000.00 if Married Filing |
| either deductible or non-deductible. If you are an active | | | | Joint.Contributions to a ROTH IRA are made with |
| participant in an employer-sponsored pension plan, such | | | | "after-tax" dollars. ROTH IRA contributions are never |
| as a 401(k), a 403(b) or a SEP, the amount of your | | | | deductible. Qualified distributions from a ROTH IRA are |
| traditional IRA contribution that is deductible is | | | | totally tax-free.A qualified distribution is one that is |
| phased-out once your "modified" Adjusted Gross | | | | made after a 5-year holding period, beginning on the |
| Income (MAGI) for tax year 2005 reaches $50,000.00 | | | | first day of the first year you make a contribution, and |
| if filing as Single or Head of Household, or $70,000.00 if | | | | is made after you reach age 59 1/2, or due to death |
| married and filing a joint return.Deductible contributions | | | | or disability or for a qualified "first-time" home purchase. |
| are made with "pre-tax" dollars. If all of your | | | | The earnings portion of a non-qualified distribution is |
| contributions to all of your IRA accounts over the | | | | fully taxable and may also be subject to a 10% |
| years were fully deductible, then all IRA distributions are | | | | penalty.You do not have to begin taking annual |
| fully taxable. Amounts that were "rolled-over" to an | | | | minimum distributions from a ROTH IRA when you |
| IRA from a pre-tax employer plan like a 401(k) are | | | | reach age 70 1/2. You never have to touch the money |
| treated as deductible contributions.Non-deductible | | | | in a ROTH IRA during your lifetime. You can continue |
| contributions are made with "after-tax" dollars. You | | | | to contribute to a ROTH IRA after you turn age 70 1/2 |
| have already paid income tax on these contributions. | | | | as long as you have earned income. If you are still |
| Accumulated non-deductible contributions make up | | | | working at age 80 you can contribute to a ROTH IRA. |
| your "basis" in the IRA. If some of your IRA | | | | Beneficiaries do not have to pay income tax on |
| contributions over the years were non-deductible, then | | | | distributions from an inherited ROTH IRA.Copyright (c) |
| a portion of any IRA distribution is a tax-free return of | | | | 2005 by Robert D Flach LLCRobert D Flach is a tax |
| your after-tax contributions. The tax-free portion is | | | | professional with 34 tax seasons of experience |
| determined by a special formula and is calculated on | | | | preparing 1040s for individuals in all walks of life. He |
| IRS Form 8606.Many taxpayers have more than one | | | | writes THE WANDERING TAX PRO weblog ( the |
| IRA account, and each account may have a different | | | | free online monthly newsletter STUFF AND SUCH ( |
| mix of deductible and non-deductible contributions. | | | | and the website which has a wealth of tax planning |
| However, when you calculate the tax-free portion of a | | | | and preparation advice and information. He also writes |
| traditional IRA distribution all monies in all traditional IRA | | | | and publishes THE FLACH REPORT, a quarterly print |
| accounts are lumped together.You must begin to take | | | | tax newsletter. |
| annual minimum distributions from your traditional IRA | | | | |