Notes of traditional IRA, Roth IRA and Infinite Roth on Roids(TM) comparing the contribution limit amounts, earned income limits, tax deductibility provisions and age of forced withdrawals, early withdrawal tax penalties, growth period, risk assessment, tax distribution amounts and consequences of estate taxes of each IRA strategy.
These notes apply to the tax year 2008 and 2009.
Traditional IRA:
Contribution Limit Amount – $5,000 + $1,000 if age 50 and above ($6,000).
Earned Income Limits – Based upon MAGI (Modified Adjusted Income) single, head of household, married filing single: full contribution to $53K, partial to $63K; married filing joint: full contribution to $85K, partial to $105K; can’t contribute more than your earned income for that year. (It’s complicated so please consult your tax advisor).
Tax Deductible – Yes, if you meet the age and earned income criteria.
Forced Withdrawals – Yes. Must withdraw at age 70 1/2. Penalty is 50% of required minimum distribution.
Early Withdrawal – Income taxable plus 10% penalty if distributed before age 59 1/2.
Growth Period – Tax deferred (Taxes are paid on distributions).
Risk – Yes, subject to the underlying investment assets and the ups and downs of the stock market.
Distributions – Taxable.
Estate Taxes – Yes. It’s part of the estate tax consequences. 70% to 80% double tax-trap if the large IRA (jumbo IRA) owner has an estate tax problem.
Roth IRA:
Contribution Limit Amount – $5,000 + $1,000 if age 50 and above ($6,000).
Earned Income Limits – Based upon MAGI (Modified Adjusted Income) Single: full contribution to $101K partial to $116K; Married, full contribution up to $159K partial to $169K; can’t contribute more than your earned income for that year. (It’s complicated consult your tax advisor).
Tax Deductible – No (Contributions are with after tax dollars) and you must meet Age and earned income criteria.
Forced Withdrawals – None.
Early Withdrawal – Early withdrawals that are more than contributions or taken before seasoning of 5 years is subject to income taxes plus 10% penalty if it’s not qualified money. Distributions can begin after age 59 1/2.
Growth Period – Tax-free (No taxes on growth years).
Risk – Yes, subject to the underlying investment assets and the ups and downs of the stock market.
Distributions – Tax-free beginning at age 59 1/2.
Estate Taxes – None. Roth IRA balance can be passed on to heirs tax-free.
Infinite Roth IRA on Roids:
Contribution Limit Amount – No limits on contribution amounts ($5,000; 50,000, 100,000, etc.). Based on your health and size of your wallet.
Earned Income Limits – No limits. There’s no earned income qualification tests. You must be healthy.
Tax Deductible – No (Contributions are with after tax dollars). There are no age or earned income criteria.
Forced Withdrawals – None.
Early Withdrawal – None.
Growth Period – Tax-free growth is guaranteed.
Risk – None. Your principal is guaranteed.
Distributions – Tax-free from policy loans (tax-free retirement nest egg).
Estate Taxes – None. Death benefit can be passed on to heirs tax-free if planned.
It seems crystal clear, you don’t have to be hit in the face by a high flying baseball, Congress will neither allow the estate tax (death tax) to expire in 2010 nor return to its pre-2001 form of $1 million exemption. There is no bad risk/reward for Congress, since the estate tax applies only to the top 2% and they can afford to lose those votes, to stay in business. The eventual estate tax reform will likely be more apparent, more progressive, more sharply defined, against the very largest estates. If you have a large IRA you need to plan ahead of the coming storm. Contact us. We have an IRA rescue plan to mitigate these unpleasant coming events, before it’s too late and the big door is closed forever.
Notes of traditional IRA, Roth IRA and Infinite Roth on Roids(TM) comparing the contribution limit amounts, earned income limits, tax deductibility provisions and age of forced withdrawals, early withdrawal tax penalties, growth period, risk assessment, tax distribution amounts and consequences of estate taxes of each IRA strategy.
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