CH 14 IRA

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the IRA can be set up as either

-an individual retirement account -an individual retirement annuity

Distributions from traditional IRAs are treated as ordinary income

-any nondeductible contributions are received income tax free -a formula is used to compute the taxable and nontaxable portions of each distribution

Roth IRA details (6)

-the annual contributions to Roth IRA are not tax deductible -the investment income accumulates income-tax free -qualified distributions are not taxable under certain conditions -contributions can be made after age 70.5 -Roth IRAs have generous income limits -a traditional IRA can be converted to a Roth IRA

Traditional IRA details (5)

-the investment income accumulated income-tax free on a tax-deferred basis -distributions are taxed as ordinary income -the participant must have earned income during the year, and must be under age 70.5 -For 2015, the maximum annual compensation is $5,500, or 100% of taxable compensation, whichever is less -A full deduction for IRA contributions is allowed under certain circumstances

two basic types of IRAs are

-traditional -Roth

IRA contributions can be invested in

a variety of investments

A Roth IRA is

another type of IRA that provides substantial tax advantages

traditional IRAs can be established at a

bank, mutual fund, stock brokerage firm, or insurer

taxpayers with incomes that exceed the phase-out limits can

contribute to a nondeductible IRA

a traditional IRA allows

workers to take a tax deduction for part or all of the IRA contributions

An individual retirement account (IRA) allows

workers with taxable compensation to make annual contributions to a retirement plan up to certain limits and receive favorable income-tax treatment

distributions from a traditional IRA before age 59.5 are considered an early withdrawal, and are

subject to a 10% tax penalty unless certain conditions apply, e.g., death or disability

a full deduction is allowed in two general situations:

-a worker who is not an active participant in an employer's retirement plan for any part of the year can make a fully deductible IRA contribution up to the annual maximum limit -even if the worker is actively participating in an employer's retirement plan, the IRA contribution is fully or partially deductible if the modified adjusted gross income is below certain threshold limit

Adequacy of IRA Funds:

-unless a life annuity is purchased, retirees face the risk of still being alive after the IRA account is exhausted -financial planners generally recommend that the initial withdrawal rate should be limited to 4 to 5% of IRA assets -many planners now use Monte Carlo simulation techniques to give a more realistic outlook of the future

An IRA rollover is

is tax free distribution of cash or other property from one retirement plan, which is deposited into another retirement plan


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