Finding the ideal IRA

Personal Finance editor HELEN HUNTLEY E-mail: Click here Archive

By HELEN HUNTLEY

© St. Petersburg Times, published February 20, 2000

Individual retirement accounts come in three main types: Roth, traditional deductible and traditional non-deductible. You can contribute to more than one, but combined contributions are limited to $2,000 per year -- or total earned income, whichever is less. Here are a few of the basic details.

Roth IRA

WHO CAN HAVE ONE: Any worker (and non-working spouse) with less than $95,000 income if single, $150,000 joint income if married. A partial contribution is allowed for income between $95,000 and $110,000 if single and $150,000 and $160,000 if married.

SPECIAL BENEFITS: Contributions cannot be deducted from taxable income, but they can be withdrawn from the Roth at any time without incurring a tax. Earnings on contributions are tax-free if withdrawn five or more years after opening your first Roth IRA account and if you are 591/2 or older. No minimum distributions are required at any age, and there's no age limit on new contributions.

ADDITIONAL WRINKLES: Traditional IRAs can be converted to Roth IRAs by paying income tax if joint income is below $100,000.

WHO BENEFITS MOST: Anyone who's not eligible for a traditional deductible IRA and many of those who are eligible for a deductible IRA, particularly younger workers and those in the 15 percent tax bracket.

Traditional deductible IRA

WHO CAN HAVE ONE:

Any worker covered by a retirement plan with less than $31,000 income if single, $51,000 joint income if married. Partial deductibility for income between $31,000 and $41,000 if single, $51,000 and $61,000 if married.

n Any worker (or non-working spouse) who is not covered by a retirement plan but is married to someone who is covered and has joint income below $150,000. Partial deductibility for income between $150,000 and $160,000.

Any worker (or non-working spouse) not covered by a retirement plan and not married to someone who is covered. No income limit.

SPECIAL BENEFITS: Contributions can be deducted from taxable income. Contributions and earnings are not taxed until the money is withdrawn, but a tax penalty applies to most withdrawals before age 591/2. Distributions must begin at age 701/2, and no additional contributions can be made.

WHO BENEFITS MOST: High income workers who don't have pension coverage and others who expect to be in a lower tax bracket after retirement.

TRADITIONAL NON-DEDUCTIBLE IRA

WHO CAN HAVE ONE: Any worker (or non-working spouse).

SPECIAL BENEFITS: Contributions cannot be subtracted from taxable income. Earnings are tax-deferred until money is withdrawn. Withdrawals are partly taxable and partly tax-free (representing return of contributions). As with a deductible IRA, a tax penalty applies to most withdrawals before age 591/2. Distributions must begin at age 701/2, and no additional contributions can be made.

WHO BENEFITS MOST: Anyone who is ineligible for a Roth IRA and a traditional deductible IRA.

Note: There also are SIMPLE IRAs, SEP-IRAs and Education IRAs, which have their own rules, different from those listed here.

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