US Poker Players: The new law doesn't criminalize the
act of online gambling, rather it prohibits American poker
players from using U.S. financial institutions when depositing or
withdrawing funds at Internet gambling sites.
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Today's IRAs offer even more ways
for your money to grow with higher contribution limits, attractive tax
incentives, and more flexibility to move money between IRAs and
employer-sponsored retirement plans. One of the main questions you
should ask is, “which type of IRA, Roth or Traditional, is the better
choice for me?” Earnings in both types grows tax-deferred (earnings are
not taxed until withdrawn). The main advantage of Traditional IRA is
it's tax deductible feature. Even though contributions to a Roth IRA is
not tax deductible, earnings in the account are not taxed when withdrawn.
Another benefit of Roth IRA is it's flexibility withdrawal rules.
Maximum Annual Contribution for 2002
Single
Couples
$3,000
for 2002-2004
$4,000 for 2005-2007
$5,000 for 2008
$6,000
for 2002-2004
$8,000 for 2005-2007
$10,000 for 2008
Contribution Rules: The contribution limit
for both Roth and Traditional IRAs is the same. You may choose to
contribute to both Traditional and Roth IRAs, but your total
contribution may not exceed the maximum annual contribution for that
year. For tax year 2002, you may contribute up to 100% of your
compensation (such as salary or wages) or $3,000 whichever is less.
You are allowed to make an additional $500 catch-up contribution if you
are age 50 or older by the end of the 2002 tax year. You may not make a contribution to a Traditional
IRA after and including the year you reach age 70 ½. For Roth
IRAs, there is no age limitation.
What is
an earned income or compensation?
This is income that you have
actually worked for — like salary or self-employment income. It
also includes any taxable alimony payments you receive. It does
not, however, include investment income such as interest,
dividends or profits from sales. It also does not include earnings
from pensions or annuities.
A child can also contribute to an IRA, as long as he
or she has earned income. It can be opened as a Traditional or Roth IRA,
with the same maximum contribution as for an adult or 100% of
earned income, whichever is less. To establish an IRA for a minor, the
account must be opened and held by an adult, as guardian, in the name of
the minor. While the adult is the individual authorized to perform
transactions on the account, the minor is considered the registered
owner for tax purposes. The final deadline for making prior year IRA
contributions is April 15. For example, a contribution for tax year 2001
may be made up until April 15th, 2002.
Income Limitations: To your Roth or Traditional IRA you may contribute the lesser
of 100 percent of your year's compensation or $3,000. However, Roth IRA
has phase out levels for contributions as outlined on the right table. If your
Adjusted Gross Income is above $110,000 for individual or $160,000
married couples,
no contributions can be made to a Roth IRA. However, a contribution can
still be made to a Traditional IRA at higher income levels, but the
contribution may not be deductible.
Adjusted Gross Income (AGI) Limits
On Contributions to a Roth IRA for 2002
AGI Limits
Single
Couples
Full contribution
$95,000 & below
$150,000 or below
Partial contribution
$95,001 -
$110,000
$150,001
- $160,000
No contribution
$110,000
& above
$160,000
& above
Tax
Deductibility: One of the major deciding factors for taxpayers is whether or
not the IRA gives the investor the ability to deduct the IRA
contribution. Being able to deduct your IRA contribution means that you
get a tax break for the year the contribution is made.
As long as you have earned income and you meet the age requirements, you
can always make a contribution to a Traditional IRA
and the amount you contribute to your Traditional IRA is tax deductible
if you are not participant of a company sponsored retirement plan. But,
if you or your spouse is enrolled in an employer sponsored retirement
plan, your income level will determine whether your contribution is
tax-deductible. If your income is too high to qualify for tax-deductible
contributions, you still may make non-deductible traditional IRA
contributions.
Contributions to Roth IRAs are never deductible.
Adjusted Gross Income (AGI) Limits
on
Deductible Contributions to a Traditional IRA for 2002
AGI Limits
Singles
Couples
Fully deductible
$34,000 & below
$54,000 & below
Partially deductible
$34,001- $44,000
$54,001- $64,000
Not deductible
$44,000 & above
$64,000 & above
The AGI limits for fully
deductible contributions increase until the year 2005 to $50,000 for
singles and until the year 2007 to $80,000 for couples.
Partially deductible
contributions phase out in 2005 at $60,000 for singles and in 2007
at $100,000 for couples.
Distributions of funds:
Generally, distributions (withdrawal) from a Traditional IRA are treated as ordinary
income and may be subject to income taxes; furthermore, there is a 10%
early withdrawal penalty if you take a distribution before age 59 1/2.
This penalty will not apply if the distribution is used for paying
college expenses or for a first time home purchase up to $10,000. You
may also have to pay taxes on the distribution, depending upon whether
the contribution was tax-deductible. You must also begin taking
required minimum distributions (RMD) from Traditional IRA by April 1 of the
year following the year you turn age 70 ½. This means gradually reducing
your IRA balance by taking out money and adding the distributed amount to your income, even
if you are not in need of the funds.
What is
an education IRA?
This IRA is also known as the
Coverdell Education Savings Account and is used exclusively to pay
education expenses. Similar to the Roth IRA, contributions are
nondeductible, earnings accumulate tax-free, and qualified
withdrawals are tax-free. The contribution is limited to
$2,000 per child in 2002 (from $500 for 2001). For more complete
details, see
Education IRAs Build Tax-Free Earnings.
On the other
hand, withdrawal from Roth IRA accounts are tax-fee and penalty-free if
it's a qualified distributions. To qualify for a penalty-free and
tax-free distribution under a Roth IRA, the account must be held for at
least 5 years. This five-year period begins with the tax year for
which the first contribution is made. For example, if you make a Roth
IRA contribution in April 2003 for tax year 2002, your
five-year period begins January 1,2002, because the contribution was
made for 2002. In addition to the 5-year holding rule, penalty-free
and tax-free distributions may be made at age 59 1/2, and early
withdrawals (before age 59 1/2) may be taken penalty-free and tax-free
(up to $10,000) if the money is used to pay for a first time home
purchase. Unlike traditional IRAs, you are not
required to take minimum distributions after age 70½; if you do not need
income from your Roth IRA, you can let your money continue to grow
tax-free. Your beneficiary, however, must take required minimum
distributions.
Tax Credit: Starting with tax year 2002, you may get up to $1,000
in tax credit for contributing to an IRA. The credit is based upon your
incom (see chart below), and will range from 0 to 50 percent of eligible
contributions. In order to determine your tax credit, multiply the
applicable percentage from the chart below by the amount of your
contributions up to $2,000.
Adjusted Gross Income (AGI)
Applicable Percentage
Joint Return
Head of a Household
All Other Cases
of tax credit
$1 - $30,000
$1 - $22,500
$1 - $15,000
50% (up to $1,000)
$30,001 - $32,500
$22,501 - $24,375
$15,001 - $16,250
20% (up to $
400)
$32,501 - $50,000
$24,376 - $37,500
$16,251 - $25,000
10% (up to $
200)
Over $50,000
Over $37,500
Over $25,000
0%
Splitting Your Contribution: If you are eligible to contribute to both type of IRAs, your
may divide your contributions between your Roth and Traditional IRAs;
however, you must ensure that the total contribution to both IRAs does
not exceed the limit for the year, ie. $3,000 for 2002 (plus $500
catch-up contribution). If you decide to split your contributions
between both types of IRAs, you may choose to contribute the
deductible amount to your Traditional IRA and the balance to your
Roth IRA. Let’s assume for example that the maximum amount you can
deduct for the 2002 tax year is $2,000. You may contribute $2,000 to
your Traditional IRA and the balance of $1,000 to your Roth IRA. Before
making such a decision, however, you must take into consideration
additional fees, such as maintenance fees charged by your IRA
Custodian/Trustee, that could result from maintaining two separate IRAs.
Note also that combining assets, by placing bulk trades into one IRA
instead of placing separate trades in separate IRAs, could help you save
on trade-related fees. Simply put, consider the short-term benefits as
well as the long-term benefits and decide which outweighs the other.
Some
taxpayers may contribute to a Traditional IRA and elect not to claim the
tax deduction even though they are eligible to do so. The benefit of not
taking a deduction is that the distribution of the same amount is tax
and penalty free. The earnings, however, will be treated as taxable
income. Further, being able to deduct your IRA contribution does not
mean that you must establish and fund a Traditional IRA. You may forgo
the tax benefit of taking a deduction in order to realize the benefits
of a Roth IRA, such freedom from the RMD rules and tax and penalty-free
distributions.
This book is a straightforward
and highly accessible guide to Individual Retirement Accounts and how to
best make use of them in light of recent tax law changes. Individual
chapters address how to manage an IRA, what to do when withdrawing from
or inheriting an IRA, what a Roth IRA is and how it can serve your needs,
and a great deal more. The New IRAs And How To Make Them Work For You is
recommended as a first-rate primer written for the non-specialist general
reader with an eye toward saving and planning for a fiscally sound
future.
Spend less than you earn! People who spend every penny
they make usually end up going broke.......
Take enough risk on the money you save! Playing safe by
putting your money under the mattress or in a savings account
will not make you wealthy..
Remember that.....Fully one-fifth of humanity, some 1.3 billion people,
struggles to survive on less than $1 per day. About 40% of
humanity survives on less than $2 per day. More than a billion
people around the world will go to bed hungry tonight. Life
expectancy in some 32 countries is less than 40 years. If you
have a few extra dollars in your pocket (you don't have to be a
millionaire to make a difference), please share some of your
financial good fortune with others who are in great need.
Think About It... Being in the 'now' brings a freedom, unlike living
in the past or in the future, which is a kind of imprisonment.
This isn't a kind of a denial where you pretend life doesn't have
problems. Life is full of problems, but most of those stresses
and failures are reliving old hurts or worrying about future
concerns. -- Carl Honore
When you 're diagnosed with cancer, you start to
bargain with God: "Let me get through this, and I'll take better
care of myself. I'll get my priorities in order. I'll learn to
live every day to the fullest." Isn't it sad that you have to get
sick before giving yourself permission to live life to the
fullest? -- Robert Schimmel
Look at Life in different & Positive ways
