Traditional IRAs

A Traditional IRA is a tax-advantaged arrangement that allows earnings and deductible contributions to grow tax-deferred. That means you don't pay income taxes on the earnings and deductible contributions of your IRA until you begin taking withdrawals, usually after you retire and possibly are in a lower tax bracket.¹ Here's more information about Traditional IRAs.

Tax Advantages
Contributions may be deductible from your gross income on your federal income tax return for the year in which the contributions are made. Earnings grow on a tax-deferred basis. Deductible contributions and earnings are subject to federal income tax when withdrawn.

Eligibility Requirements
You must not attain the age of 70½ during the year you contribute to a Traditional IRA. You must also have earned income (compensation) in order to contribute to a Traditional IRA.

Annual Contribution Limits

What's new for 2010?

The rules for IRAs change just about every year. For 2010, some things stay the same – and others don't! Let's take a closer look.

First, the contribution levels are holding steady. Qualified taxpayers can deposit $5,000 into an IRA for tax years 2009 and 2010, with an additional $1,000 allowed for those over the age of 50. Income limits and other restrictions may affect your ability to contribute.

Now, what's new? Well, higher-income taxpayers may now be able to enjoy the many benefits of a Roth IRA, thanks to a new conversion rule.

Individuals with modified Adjusted Gross Income of more than $100,000 can now convert a Traditional IRA to a Roth IRA. Removing the limit on conversions effectively eliminates the income limit on contributions to Roth IRAs, since you could open a Traditional IRA and immediately convert it to a Roth.

You will typically have to pay taxes on the amount you convert, since before-tax funds were deposited. But for 2010 only, your tax liability can be spread out over two years.

Why would you want a Roth IRA?

Qualified withdrawals are tax-free
Your earnings grow tax-free
No withdrawals are required
You may be able to pass on earnings to beneficiaries tax-free

Since the rules are complex, we recommend consulting your tax adviser before making any decisions about your IRA. When you are ready to open an account for 2009 or 2010, just stop by any branch. We offer Roth, Traditional and Cover-dell (Education) Accounts with competitive rates and no annual fees.

(Source: TurboTax Tips)

*Please see your tax adviser for any applicable tax laws and eligibility requirements.

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