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Traditional IRAs vs. Roth IRAs |
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For the Traditional IRA, yearly contributions may be income tax-deductible, and income is taxed when withdrawn at retirement. For the Roth IRA, yearly contributions are not deductible from income taxes, but earnings on the Roth IRA are not taxed on qualified withdrawals.
Subject to certain limitations, you can transfer funds from an existing IRA into a Roth IRA without the 10 percent penalty tax. However, the IRS will treat this transaction as an income-taxable event.
If you are planning for retirement and considering an IRA, we can help you calculate what's best for you. We also strongly recommend that you consult your tax adviser before making a decision.
Roth IRAs |
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| Will you be able to retire comfortably? |
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Thanks to the Economic Growth and Tax Relief Reconciliation Act of 2001, IRAs today are more flexible, and more people have access to their tax advantages. And, IRAs aren't just for retirement, either. You can withdraw funds from your IRA without tax penalties for qualified educational expenses or to buy your first home.
A Traditional IRA can offer great tax benefits. Your contributions today may be income tax-deductible and taxes on earnings are deferred until withdrawal. With a Farmers Traditional IRA, you get a competitive interest rate and at retirement to provide a lifetime income.
Can you qualify for a Traditional IRA?
If you're under 70 1/2, you may be able to contribute up to $4,000* a year if single, or $8,000* if married. If neither you nor your spouse participate in an employer-sponsored retirement plan, each of you can deduct the full $4,000* IRA contribution for a total of $8,000* a year.
Through 2005, individuals age 50 and older may contribute up to an additional $500 to their IRA's per year, increasing to $1,000 beginning in year 2006.
If one spouse participates in an employer-sponsored retirement plan, there are income limits, which gradually phase out income tax deductibility. Full deductibility is available to those whose 2005 modified adjusted gross income (MAGI) is $70,000 or less for joint filers or $50,000 or less for a single taxpayer ($75,000 for tax year 2006 and $80,000 for tax year 2007).
If an individual is not an active participant in an employer-sponsored retirement plan, but his or her spouse is, the income limit for deducting contributions starts at over $150,000 combined MAGI and phases out at $160,000.
*$4,000 maximum annual contribution per individual ($8,000 combined for joint filers) for tax years 2005-2007. A $5,000 maximum annual contribution per individual ($10,000 for joint filers) will be allowed in tax year 2008. To find out if you qualify, contact us at 281-240-1888.
To find out if you qualify, contact us at 281-240-1888.
Flexible withdrawal options
Withdrawals from Traditional IRAs are income taxable in the year they are taken.
Withdrawals before age 59 1/2 are subject to a 10 percent penalty tax unless withdrawn for:
» First home purchase (limited to $10,000)
» Qualified higher education expenses
» Death or disability
» Certain medical or health insurance expenses
This document is for informational purposes only. You should consult your attorney, accountant or tax adviser for specific legal or tax advice. |
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Are you satisfied with your retirement plan?
Will you have the resources you need for a comfortable life?
The Roth IRA allows you to buy an Individual Retirement Annuity with after-tax dollars now and withdraw principal and earnings not subject to income tax after five years. You can withdraw funds after age 59 1/2, or sooner to pay for qualified educational expenses or the purchase of a new home.
Broader eligibility requirements
There is no age limit for making contributions to a Roth IRA. You must have earned income equal to the amount of your contribution, up to $4,000* annually for an individual or a combined $8,000* for a couple. For those 50 years and older additional catch-up contributions may be made.
Limits on contributions
If your modified adjusted gross income exceeds $150,000 and you file jointly ($95,000 for single filers), the amount you may contribute is gradually reduced and phased out. The combined total of IRA and Roth IRA accounts cannot exceed the maximum annual contribution of $4,000* per individual. The Roth IRA must be kept in a separate account.
Qualified distribution
Under certain conditions, you can withdraw from your Roth IRA without paying taxes or penalties. First, you must wait five years after the first tax year in which you made contributions. Second, you must have reached the age of 59 ½ or the withdrawals must be due to:
» Disability
» First home purchase
» Death
Non-qualified distribution of earnings is taxable income and can be subject to a 10 percent Internal Revenue Service penalty.
This document is for informational purposes only. You should consult your attorney, accountant or tax adviser for specific legal or tax advice.
*$4,000 maximum annual contribution per individual ($8,000 combined for joint filers) for tax years 2005-2007. A $5,000 maximum annual contribution per individual ($10,000 for joint filers) will be allowed in tax year 2008. |
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