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Your savings insured to
at least $100,000 by
the
National Credit Union Administration, a U.S. Government Agency.
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Section contents:
The traditional IRA always lets you defer taxes on dividends until you begin
taking distributions. Most individuals younger than age 70 1/2 can make
contributions to a Traditional IRA, and the contributions may be
deductible on your federal income tax return. You pay no trustee fee on
your IRA at Northrop Grumman Federal Credit Union so all the dividends work for you.
This page describes the new IRA rules that began with tax year 2002.
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Highlights |
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The Traditional IRA may be right for you if:
- You are looking for a possible tax deduction.
- You are the spouse of a participant in a company-sponsored
retirement plan, your joint adjusted gross income is not more than
$160,000, and you are not a participant.
- You want to rollover 401(k) or 403(b) distributions into an IRA to
avoid the mandatory federal income tax withholding. If you're younger
than 59 1/2, you will also avoid a 10% tax penalty.
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| Contribution Limits |
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The limit for an individual’s IRA contribution rose
by 50% in 2002 and more than that for people who will be age 50 or older
on December 31, 2002. The following chart summarizes the limits for 2002
and beyond:
| Tax Year |
Yearly Individual
Contribution Maximum |
Age 50 and Over
May Add: |
| 2002-2004 |
$3,000 |
$ 500 |
| 2005 |
$4,000 |
$ 500 |
| 2006-2007 |
$4,000 |
$1,000 |
| 2008 |
$5,000 |
$1,000 | |
| Tax Credit for Some Taxpayers |
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To encourage individuals to save for
retirement, there is a non-refundable tax credit available on up to
the first $2,000 saved in an IRA or other eligible retirement
savings plan. This feature is better than a tax
deduction; it will mean that your federal tax bill is reduced by a
percentage of the money you save. Tax year 2002 is the
first year this is available! The amount of a credit will be
based on Modified Adjusted Gross Income (MAGI). Please consult
your tax advisor for details.
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| Minimum Requirements |
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The following minimum requirements apply to
Traditional IRAs:
- Under age 70 1/2.
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Consult your tax advisor for your specific
contribution levels.
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| Frequently Asked Questions |
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Be sure to speak with a qualified tax advisor to verify the consequences
of transactions involving your IRA.
Q: If I am eligible for a company 401(k) plan, what is the best way for
me to invest money for retirement?
A: Most financial advisors will recommend that your first step is to fund
your 401(k) plan completely; especially if your employer provides matching
contributions. If you want to save more for retirement, then consider
the Roth IRA, up to the maximum allowed for
your income level. By investing in the Roth IRA, you'll enjoy the benefit of
tax-free distributions when you retire - a feature not available in any of the
other retirement savings options. If you're not eligible to contribute to a
Roth IRA, remember that a traditional IRA always brings you a tax-deferred
earnings even if you can't take a tax deduction for your contribution.
Q: What is the tax advantage of a Traditional IRA?
A: Your contribution to a Traditional IRA may entitle you to a tax deduction
or even a tax credit, based on your income level, filing status and participation
in an employer-sponsored retirement plan. Dividends on a Traditional IRA are never
taxed until you withdraw them after you retire and may be in a lower income tax bracket.
Q: Can I still convert my Traditional IRA into a Roth IRA?
A: Most tax payers can convert a Traditional IRA to a Roth IRA, but may
federal income taxes may be levied on all or part of the amount you are
converting. It is always best to consult your tax advisor before making
a conversion.
Q: May I have both a Roth and Traditional IRA?
A: Yes. You may choose to have both, as long as your combined contributions do not exceed
the maximum allowable for IRAs in the year of your contributions. Remember
there are special contribution limits on Roth IRAs based on income level.
Q: Can I rollover funds from my 401(k) plan directly into a Roth IRA?
A: Not quite. A rollover can only be done into a Traditional IRA.
Then, for most individuals, the funds can be converted to a Roth IRA.
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