IRA

The Four Types of IRAs

- Traditional IRA	- Roth Contributory IRA
- Rollover IRA	- Roth Conversion IRA

Retirement Arrangement	Traditional IRA (Individual Retirement Account)

Available to:	Individuals with earned income or such individuals' spouses (if filing jointly) with no earned income, under the age of 70 1/2, who want to save for retirement through a tax-deferred account. Especially for small company employees who cannot participate in the 401(k) plan of your PEO.
How it works:	Individual or spousal account opened with IRA custodian. Any earnings grow tax-deferred; contributions may be deductible on the 1040 tax return depending on individual's participation in an employer-sponsored retirement plan and adjusted gross income. Annual contributions at discretion of account owner. The payroll deduction plan of your PEO systematically defers monthly taxable contributions up to the limits allowed. You may reclaim credit for the tax withholding on your 1040 tax return.
Main Features:	Deductible contributions reported on IRA Form 1040. Nondeductible contributions reported on IRA Form 8606. Have until April 15 to contribute for previous year. Penalty of 10% if withdrawn before age 59 1/2 (with certain exceptions); required minimum distributions begin at age 70.
Annual Contributions:	Individual filers can contribute up to $3,000 or 100% of earned income, whichever is less. A wage earning spouse who files a joint return can contribute up to $3,000 to a Spousal IRA for a spouse who is not employed, or earns less than $3,000. Amount of tax-deductible contribution dependent on adjusted gross income and individual's coverage by employer-sponsored retirement plan. Can contribute up to $6,000 (or 100% of compensation, whichever is less) to Traditional and Spousal IRAs with no more than $3,000 contributed to either IRA. The payroll deduction plan can accommodate spousal contributions as well as individual employee contributions. However, taxes will be withheld to be reclaimed when you file your tax return.
Catch Up Contributions:	Individuals age 50 or older will be able to contribute an additional $1000 to their IRA in 2008.
Advantages:	May reduce current taxable income Any earnings grow tax-deferred Penalty-free early distributions prior to age 59 1/2 for certain purposes, including: First-time home purchase expenses ($10,000 lifetime limit) Qualified higher education expenses (no dollar limit) Substantially equal periodic payments Certain Medical expenses in excess of 7.5% AGI Certain Unemployed expenses, Death or Disability Back to Top

Retirement Arrangement	Rollover IRA
Available to:	Individuals leaving a job or receiving a retirement plan distribution (other than minimum required distribution, after tax money, or equal periodic payments) who want to keep their retirement savings in a tax-deferred account. These rollovers can be made to payroll deducted IRAs; if they did not originate in a 401(k) or company-sponsored retirement account.
How it works:	Individual account opened with IRA custodian. Eligible distributions from qualified plan are directly rolled over to Rollover IRA. Direct rollover avoids 20% withholding requirement. If distribution is received by plan participant, must roll over within 60 days of receipt to maintain tax-deferred status. Continued tax-deferred treatment until withdrawn. May be moved directly to new employer's plan (if plan allows).
Main Features:	Separate and distinct account from Traditional IRA; commingling of money (Traditional and Rollover IRA) results in loss of future movement to qualified plan (e.g. next employer's retirement plan). Penalty of 10% if withdrawn before age 59 1/2 (with certain exceptions); required minimum distributions begin at age 70 1/2.
Annual Contributions:	Not applicable. (Minimum required distribution, if applicable, must be made prior to direct rollover. In addition, any after-tax money or equal periodic payments cannot be rolled over).* * The $3,000 annual limit per individual is reduced by any amount contributed to a Roth IRA for the same individual for the same tax year.
Advantages:	Avoid penalties for early distributions from employer-sponsored retirement plan. Keep tax-deferred status of money. Can subsequently roll over into new plan if plan of new employer permits. Penalty-free early distributions prior to age 59 1/2 for certain purposes, including: First-time home purchase expenses ($10,000 lifetime limit) Qualified higher education expenses (no dollar limit) Substantially equal periodic payments Certain medical expenses in excess of 7.5% AGI Certain unemployed expenses, death or disability Back to Top

Retirement Arrangement	Roth Contributory IRA (Effective January 1, 1998)
Available to:	Individuals with earned income or such individuals' spouses (if filing jointly) with no earned income who want to save for retirement through a tax-free account. An individual can contribute to a Roth IRA even if he or she is an active participant in an employer sponsored plan. The payroll deduction plan can accommodate spousal contributions as well as individual employee's contributions.
How it works:	Individual or spousal account is opened with an IRA custodian and funded with after-tax contribution. Any earnings grow tax-free provided certain requirements are met; contribution non-deductible. Annual contributions may be made at discretion of account owner. Distributions are tax-free and penalty-free if taken at or after age 59 1/2 or because of death, disability or first-time home purchase ($10,000 lifetime limit and after a 5-year holding period).
Main Features:	Contributions are permitted after age 70 1/2 with earned income. Distributions of any earnings taken before the 5-year holding period is met are taxable and may be subject to a penalty if withdrawn before age 59 1/2 (with certain exceptions). No required minimum distributions at age 70 1/2.
Annual Contributions:	Individual filers can contribute up to $3,000 or 100% of earned income, whichever is less. A wage earning spouse who files a joint return can contribute up to $3,000 to a Spousal IRA for a spouse who is not employed, or earns less than $3,000. Contribution eligibility is subject to income limits (phased out for joint filers with adjusted gross income of $150,000 - $160,000). The payroll deduction plan can accommodate spousal contributions as well as individual employee contributions.
Catch Up Contributions:	Individuals age 50 or older will be able to contribute an additional $1000 to their IRA in 2008.
Advantages:	Any earnings grow tax-free provided certain requirements are met. No minimum required distributions. Qualified distributions are tax-free and penalty-free upon completion of the 5-year holding period and: If taken at or after age 59 1/2 Qualified first-time home purchase expenses ($10,000 lifetime limit) Death or disability This is a good supplementary contribution vehicle for highly compensated employees who have reached their contribution limits in the 401(k). Back to Top

Retirement Arrangement	Roth Conversion IRA (Effective January 1, 1998)
Available to:	Individuals with IRA assets (Traditional or Rollover) and with adjusted gross income of $100,000 or joint filers with $150,000 or less.
How it works:	Conversion of IRA(s) to Roth Conversion IRA can be made anytime after 12/31/97.
Main Features:	Can convert (no maximum dollar amount) from IRA(s) (Traditional and Rollover) to a Roth Conversion IRA. Conversions are available in any year, with the taxable amount distributed from the IRA subject to ordinary income tax, generally in the year of conversion. If conversion occurs before 1/1/99, conversion taxable amount must be included in ordinary income ratably over a four year period. No required minimum distributions at age 70 1/2.
Annual Contributions:	Not applicable.
Advantages:	Earnings grow tax-free provided requirements are met. No minimum required distributions. Qualified distributions* are tax-free and penalty-free upon completion of the 5-year holding period and: If taken at or after age 59 1/2 Qualified first time home purchase expenses ($10,000 limit) Qualified higher education expenses (no dollar limit) Death or disability *Distributions are taken from the nontaxable portion of the Roth IRA first; only when all aggregate contributions have been withdrawn will any earnings (subject to taxation) be distributed. Back to Top