Ask the Tax Pro: IRA Basics

QUESTION:I got to thinking about IRAs. I think this isonce you reach age 70 1/2. Once you turn age 70 1/2
how it works-Traditional IRA contributions are fromyou can no longer make contributions to a traditional
dollars not taxed. Distributions from this type IRA areIRA, even if you continue to work and have earned
then taxed upon withdrawal.ROTH IRA contributionsincome. Upon your death your beneficiaries will be
are from dollars taxed during the year you make thetaxed on distributions from an inherited traditional
contribution. Distributions from this type of IRA are notIRA.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 areHead of Household or $160,000.00 if Married Filing
either deductible or non-deductible. If you are an activeJoint.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 yourdeductible. Qualified distributions from a ROTH IRA are
traditional IRA contribution that is deductible istotally tax-free.A qualified distribution is one that is
phased-out once your "modified" Adjusted Grossmade after a 5-year holding period, beginning on the
Income (MAGI) for tax year 2005 reaches $50,000.00first day of the first year you make a contribution, and
if filing as Single or Head of Household, or $70,000.00 ifis made after you reach age 59 1/2, or due to death
married and filing a joint return.Deductible contributionsor disability or for a qualified "first-time" home purchase.
are made with "pre-tax" dollars. If all of yourThe earnings portion of a non-qualified distribution is
contributions to all of your IRA accounts over thefully taxable and may also be subject to a 10%
years were fully deductible, then all IRA distributions arepenalty.You do not have to begin taking annual
fully taxable. Amounts that were "rolled-over" to anminimum distributions from a ROTH IRA when you
IRA from a pre-tax employer plan like a 401(k) arereach age 70 1/2. You never have to touch the money
treated as deductible contributions.Non-deductiblein a ROTH IRA during your lifetime. You can continue
contributions are made with "after-tax" dollars. Youto 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 upworking at age 80 you can contribute to a ROTH IRA.
your "basis" in the IRA. If some of your IRABeneficiaries do not have to pay income tax on
contributions over the years were non-deductible, thendistributions from an inherited ROTH IRA.Copyright (c)
a portion of any IRA distribution is a tax-free return of2005 by Robert D Flach LLCRobert D Flach is a tax
your after-tax contributions. The tax-free portion isprofessional with 34 tax seasons of experience
determined by a special formula and is calculated onpreparing 1040s for individuals in all walks of life. He
IRS Form 8606.Many taxpayers have more than onewrites THE WANDERING TAX PRO weblog ( the
IRA account, and each account may have a differentfree 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 aand preparation advice and information. He also writes
traditional IRA distribution all monies in all traditional IRAand publishes THE FLACH REPORT, a quarterly print
accounts are lumped together.You must begin to taketax newsletter.
annual minimum distributions from your traditional IRA