IRA rules: Another type of retirement plan that may come into play in your life. It is known as a traditional IRA. I like Roths better than traditional IRA’s. A traditional IRA used to be the only IRA in town, until Roths were created in 1997. The maximum contribution in a traditional IRA is the same for a Roth: $4,000 in 2007. And just like a 401k, with a traditional IRA, the money grows tax-deferred, but you must pay income tax on your withdrawals.
If you don’t have a 401k at work, you can invest in a traditional IRA no matter what your income is, and your contribution is tax-deductible. For example, if you invest $4,000 and you are in the 15 percent tax bracket, your tax bill will be reduced by $600 ($4,000 x 15%). But if you have a 401k, you are eligible for the full tax break on the traditional IRA only if you are single and your modified adjusted gross income (MAGI) is below $50,000 in 2007. For married couples filling a joint tax return, the limit in 2007 is $80,000. Between $50,000 and $60,000 single filers can get a partial deduction; for married couples filling a joint tax return, the partial deduction cuts off after your MAGI exceeds $100,000.
If your income exceeds those limits, you can still invest in a traditional IRA but you wont get the tax break on your contributions; you must contribute with after-tax money.
Even if you get the full tax break on a traditional IRA, the Roth is the smarter IRA move. With tax rates so low right now, I don’t think the deduction is anything to write home about.
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Super post, Need to mark it on Digg
Thanks