7 weeks left to fund your IRA for 2005 February 28, 2006
You have less than 7 weeks left to fund your IRA for 2005. If you qualify, the Roth IRA is the one you want to put money into because even though you are putting in after tax dollars, as long as you keep the money in until you are 59 there is no further tax on it, ever. The growth is tax FREE.
The traditional IRA, on the other hand, is typically after-tax dollars as well, but the growth is tax DEFERRED. so you will pay tax on the capital gain between now and age 59, but you don’t have to pay it until you are 59 (or later). This is helpful because you can take money out whenever you want and presumably wait until you are not making any money and in a lower tax bracket before you take the tax hit. But there will be a bill to pay eventually. So the balance is between paying the tax every year, versus getting the deferral. definitely advantageous, but nothing close to the Roth IRA.
You’re eligible to make a regular contribution to a Roth IRA even if you participate in a retirement plan maintained by your employer. These contributions can be as much as $4,000 for 2005 through 2006. (If you’re 50 or older by the end of the year, add another $500 for 2004 and 2005, and $1,000 beginning in 2006.) There are just two requirements.
- First, you or your spouse must have compensation or alimony income equal to the amount contributed.
- And second, your modified adjusted gross income can’t exceed certain limits. For the maximum contribution, the limits are $95,000 for single individuals and $150,000 for married individuals filing joint returns. The amount you can contribute is reduced gradually and then completely eliminated when your modified adjusted gross income exceeds $110,000 (single) or $160,000 (married filing jointly).