Tax Treatment of Retirement Accounts and IRA's

IRA's

What is the difference between ROTH IRA's and all the other Retirement accounts like Traditional IRA's, 401K's and 403b's etc?

ROTH's are unique in that contributions are after tax - there is no tax deduction for contributing to a ROTH except for low income taxpayers. Timely withdraws are totally tax free The other IRA's are salary deferral arrangements. Contributions to these programs are tax deductible, but upon retirement, the earnings are taxable. High income taxpayers generally benefit more in the long run with salary deferral. Talk to your investment advisor about what is right for you.

How much can I contribute to an individual IRA

For the 2008 tax year, you can contribute up to 5000$ or if you are over 60 years of age, 6000$. This amount is subject to your eligibility to participate in an employer sponsored plan. The fact that you do not contribute is does not determine your eligibility.

When I withdraw funds from my retirement account before retirement, what are the tax consequences?

If you are withdrawing from a ROTH IRA, any withdraws of contribtutions are tax free. For the remaining tax deferred arrangements, you will be taxed at your normal income federal and state tax bracket PLUS a 10% penalty will be levied on any withdraws that are not for certain situations deemed exempt by the tax code. An example of penalty free withdraws would be for educational expenses, first time home purchases, medical expenses more than 7.5% of your income and others.

Do you know a good investment advisor?

Our recommended investment advisor/ financial planning professional is Jon Hansen at Edward Jones. Click here  for a link to his site ad mention TravelTax when contacting him.

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