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IRAs

There are several types of IRAs: Traditional IRAs, Roth IRAs, SIMPLE IRAs, and SEPs. You may personally set up a traditional or Roth IRA with your bank or broker. SIMPLE IRAs and SEPs are available only if your employer offers such plans.

  • Traditional IRA contributions may be fully deductible, partly deductible, or not deductible at all, depending on whether you (and your spouse) have retirement coverage where you work and, if so, whether your income subjects you to the deduction phaseout rules.
  • Distribution rules for traditional IRAs and Roth IRAs differ. Traditional IRA distributions are generally fully taxable and if made before age 59½ and subject to a penalty if certain exceptions are not met. Minimum distributions from a traditional IRA must begin after you reach age 70½.
  • Roth IRAs are an alternative to traditional IRAs. Although contributions are not deductible, the major tax advantage of the Roth IRA is that tax-free withdrawals of earnings may be made after a five-year waiting period if you are over age 59½. Tax-free withdrawals of contributions may be made at any time. A traditional IRA may also be converted to a Roth IRA. If necessary, a Roth IRA may be recharacterized back to a traditional IRA, and subsequently reconverted to a Roth IRA.

Low-to-moderate-income taxpayers may be able to claim a tax credit on Form 8880 for 2006 contributions to a traditional IRA, Roth IRA, SIMPLE IRA, or salary reduction SEP, as well as deferrals to other employer-sponsored retirement plans.