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ROTH IRA
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Roth IRAs offer a tax-advantaged approach to accumulating funds for retirement by allowing contributions to grow tax-deferred until they are withdrawn. Individuals may annually contribute up to $3000 or 100% of their earned income, whichever is less. IRA owners 50 years old or older may contribute an additional $500 catch-up contribution. Distributions from Roth IRAs will be income tax free if the Roth IRA is at least 5 years old AND the IRA owner is 59 ½ years old or older.
Additional features of Roth IRAs: |
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- Contributions are not tax-deductible
- Roth contributions grow tax-deferred and may be tax-free when removed
- Individuals may make Roth IRA contributions at any age provided they have adequate earned income
- 2003 contribution limit $3000
- Up to $3,000 may be contributed for a non-working spouse for 2003
- Individuals filing a single return earning between 95,000 and 110,000 may have their contributions reduced or eliminated.
- Married couples filing a joint return earning between 150,000 and 160,000 may have their contributions reduced or eliminated.
- Generally, your IRA contributions must be made on or before April 15, your federal income tax filing deadline
- Traditional IRAs may be converted to Roth IRAs, Consult IRS publication 590 for details.
- Roth IRAs do not require minimum distributions
- Distributions may be income and penalty tax-free if the IRA owner meets certain requirements.
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SEP IRA
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SEP IRAs are special IRAs that accept company contributions on behalf of the IRA holder. A business may establish the SEP plan by completing IRS form 5305-SEP. After the plan is in place, employees of that business that meet specific age, work experience, and earnings requirements may establish SEP IRA accounts that can accept company SEP contributions.
Additional SEP IRA features: |
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- Only a business owner can establish a SEP plan.
- 2003 contribution limit is the lesser of $40,000 or 25% of compensation. Special calculations apply to sole proprietors and partnerships
- SEP contributions are discretionary and flexible
- SEP plans are 100% vested
- SEP contributions may be deductible for the business and are not taxable to the participant
- SEP plans may be established and funded up to the employer's income tax filing deadline plus extensions
- Traditional IRAs can accept SEP contributions
- SEP contributions grow tax-deferred until removed
- Employees do not contribute to the SEP IRA; the plan is funded entirely by the business
- SEP Participants must begin required minimum distributions by April 1st of the year following the year they turned 70 ½
- Distributions taken before the participant reaches age 59 ½ may be assessed a 10% tax penalty
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SIMPLE IRA |
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SIMPLE IRAs are special IRAs that accept both company and employee contributions. To be eligible for a SIMPLE plan, a business must not have more than 100 employees. Once a SIMPLE plan is active, employees of that business that meet work experience and earnings requirements may establish SIMPLE IRA accounts that can accept company and employee SIMPLE contributions.
Additional SIMPLE IRA features: |
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- Only a business owner can establish a SIMPLE plan
- SIMPLE plans may be established using the 5304-SIMPLE plan
- 2003 employee contribution limit $8000
- Employees 50 years old and older may make a $1000 catch-up contribution
- Company SIMPLE contributions are mandatory and may be either a matching or non-elective formula
Matching formula: Lesser of 100% of the employee contribution or 3% of annual salary
Non-elective formula: 2% of annual salary for all eligible participants
- Employer contributions are tax deductible
- Deadline to establish a SIMPLE is October 1st
- Employees may make voluntary salary deferral SIMPLE contributions
- Employee contributions are tax deductible
- Contributions grow tax-deferred until removed
- Distributions taken within the first 2 plan years are subject to a 25% penalty tax
- Distributions taken before the participant reaches age 59 ½ may be assessed a 10% penalty tax
- SIMPLE Participants must begin required minimum distributions by April 1st of the year following the year they turned 70 ½
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TRADITIONAL IRA
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Traditional IRAs offer a tax-advantaged approach to accumulating funds for retirement by allowing contributions to grow tax-deferred until they are withdrawn. Individuals may annually contribute up to $3000 or 100% of their earned income, whichever is less. IRA owners 50 years old or older may contribute an additional $500 catch-up contribution.
Additional features of IRAs: |
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- Individuals may make IRA contributions up to age 70 ½ provided they have adequate earned income
- 2003 contribution limit $3000
- Up to $3,000 may also be contributed for a non-working spouse for 2003
- Contributions may be fully or partially deductible depending on the participant's income, tax filing status, and if they participate in a retirement plan
- IRA earnings grow tax-deferred until removed.
- Generally, IRA contributions must be made on or before April 15th, your federal income tax filing deadline
- Participants must begin required minimum distributions by April 1st of the year following the year they turned 70 ½
- Distributions taken before the participant reaches age 59 ½ may be assessed a 10% tax penalty
- Some exceptions apply to the 10% tax penalty. Consult IRS Publication 590 for details.
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