• Traditional IRAs
• Roth IRAs
• Conversions
• SEP Plans
• SIMPLE Plans
• Traditional vs. Roth IRA
• Coverdell Education Savings Accounts
• Current Contribution Limits

New Regulations (that may offer additional opportunities to IRA participants)

• Traditional IRA (.pdf)
• Roth IRA (.pdf)

Retirement and Education Savings Accounts

Traditional IRAs

The Traditional IRA allows you the benefit of tax-deductible contributions and the possibility of tax-deferred growth.

Contributions & Limits

For the 2009 year, you may make an annual contribution of $5,000 or 100% of your compensation, whichever is less, until you reach the age of 70½.  After 2009 the inflation adjusted limit will have the potential to increase in $500 increments. For individuals who have reached the age of 50 before the close of the tax year, the contribution limit is increased to $6,000.  See catch-up contributions below.
 
Deductible Contributions

Contributions are deductible if you are not covered by an employer-sponsored plan (not an “active participant”) or if you are an “active participant” and your annual income falls within specified limits.

For 2009, you may be able to claim the retirement savings contributions credit if your modified adjusted gross income (AGI) is not more than:

• $55,500 if you’re filing status is married filing jointly,
• $41,625 if you’re filing status is head of household, or
• $27,750 if you’re filing status is single, married filing separately, or qualifying widow(er)

More information about “active participation” in an employer sponsored plan and the income limits can be obtained from the IRS Publication 590.  The Aston IRA Disclosure Statement also contains helpful information.
Catch-up Contributions

An individual who attains the age of 50 before the close of the taxable year (December 31st) may make catch-up contributions in addition to the maximum contribution limit. You will be able to contribute:

Traditional IRA Limitations

You cannot contribute to a Traditional IRA if you will be 70½ by the end of the year. You may contribute to both Traditional and Roth IRAs, however the maximum contribution cannot exceed the maximum annual contribution limit of $5,000 for 2009 or $6,000 if the catch-up applies. Potential increases may apply thereafter.

Individuals whose income is greater than the limitation imposed by the Roth and who are unable to make deductible contributions to a Traditional IRA can still make “non-deductible” contributions to the Traditional IRA. It is the responsibility of the IRA holder to keep track of these contributions. Non-deductible contributions must be reported on IRS Form 8606.

Withdrawals

Distributions taken from a Traditional IRA prior to age 59½ will incur a 10% penalty on the taxable portion of the distribution. There are some exceptions where money can be taken without a penalty such as a first-time home purchase, higher education expenses, death or disability and some medical expenses. Please consult your tax adviser or Publication 590 for further details.

Required Distributions

Required minimum distributions must begin at age 70 ½ for Traditional IRAs.

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Roth IRAs

Roth IRAs are always made on an after-tax basis.  A major benefit to the Roth IRA is that the earnings may be tax-free (as long as certain requirements are met) rather than simply tax-deferred.

Contribution Limits, Deductibility, Catch-up Contributions

You can contribute to both a Traditional IRA and a Roth IRA; however, the total contributions between the two accounts cannot exceed $5,000 in 2009. Minors who have earned income can contribute to an account, as long as there is an adult named as a responsible individual on the account.

The modified AGI limit for Roth IRA contributions has increased.  For 2009, your Roth IRA contribution limit is reduced (phased out) in the following situations.

• Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $166,000.  You cannot make a Roth IRA contribution if your modified AGI is $176,000 or more. 
• Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2009 and your modified AGI is at least $105,000.  You cannot make a Roth IRA contribution if your modified AGI is $120,000 or more. 
• Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-.  You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more for individuals who are married, lived with their spouse at any time during the year, and file a separate tax return. 

Catch-up Contributions

An individual who attains the age of 50 before the close of the taxable year (December 31st) may make catch-up contributions in addition to the maximum contribution limit.  You will be able to contribute:

• An additional $1,000 in 2009
• Potential increase in increments of $500 in year 2010 and beyond

Finally, unlike Traditional IRAs, Roth IRAs do not require you to start withdrawing at age 70½.

Withdrawals

Distributions can be taken penalty-free at any time if they are used to pay for higher education expenses.  There are also additional circumstances where funds from the Roth IRA can be used without penalty, including death, disability, medical expenses, or if the investor uses a series of substantially equal periodic payments.  These situations would apply even if the Roth IRA has been in existence for less than five years.  Please consult your tax adviser or Publication 590 for further details.

Any distribution, or portion of any distribution, which consists of the return of contributions you made to your Roth IRA is not subject to federal income tax.  For federal income tax purposes, contributions are presumed to be withdrawn first, then conversion contributions, then earnings.

The earnings on your contributions will not be subject to federal income tax when withdrawn if the assets being withdrawn have been in your Roth IRA for at least five (5) years from the first taxable year in which a contribution, including rollover and conversion contributions, was made to the Roth IRA.  Additionally, any one of the following criteria must be met:

The earnings portion of distributions made prior to the end of the five-year holding period, regardless of the reason, are subject to ordinary income tax plus a 10% penalty tax on early distributions.  Distributions of conversion contributions prior to five years from the tax year of conversion are subject to the 10% penalty tax unless one of the exceptions listed under Early Distributions applies:  however, such distributions are not subject to ordinary income tax.  Exceptions to the 10% additional tax on early distributions are described in the IRA Disclosure Statement in the section titled Early Distributions.


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Conversions

Any taxable income resulting from a conversion will be includable on your federal income tax return for the year of the conversion.

If you have decided that the Roth IRA may be suitable for you, you can convert your Traditional IRA into a Roth IRA. In order to do this, your modified adjusted gross income must not exceed $100,000 (single or joint filers) in the year of the conversion.

If your modified adjusted gross income is over $100,000 or you are married filing separately and you lived with your spouse at any time in 2009, you cannot convert any amount from traditional, SEP, or SIMPLE IRAs to a Roth IRA for 2009.

Additionally, because of income limitations, some investors may not be eligible to convert to a Roth IRA. We recommend you consult your tax adviser about your personal situation when deciding whether to convert your Traditional IRA to a Roth IRA.

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SEP Plans

If you are an employer, establishing a SEP (Simplified Employee Pension Plan) may be ideal for you if you are a:

1. Sole Proprietor
2. Partnership
3. Corporation
4. “S” Corporation
5. Limited Liability Partnership (LLP)
6. Limited Liability Company (LLC)
7. Tax-Exempt Organizations

A SEP Plan lets you make tax-deductible contributions for you and your eligible employee(s).  Speak to a tax advisor if you are considering establishing a SEP plan.

Contributions

For annual contributions:

• The maximum contribution for a SEP Plan is the lesser $49,000 or 25% of your compensation for the plan year 2009
• Employees can make their personal IRA contribution into the SEP IRA account limited to $5,000 in 2009 ($6,000 if 50 or older)

Employers - Establishing a SEP Employer Plan

The employer may complete either IRA Model 5305-SEP or a prototype plan agreement.  The employer is required to provide a copy of the agreement to each and every employee/SEP IRA participant.

To establish a new SEP IRA:

A SEP IRA is a Traditional IRA that accepts employer contributions under an employer’s SEP plan.  A SEP IRA is funded by employer contributions. You may make your annual Traditional IRA contribution into your SEP IRA.  Your IRA contributions are based on the annual IRA contribution limits as set forth by the IRS and are subject to your individual tax filing deadline without extensions.

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A SIMPLE plan (Savings Incentive Match Plan for Employees) is a simplified retirement plan created by the Small Business Job Protection Act of 1996 especially for small and growing businesses, with generally, 100 or fewer employees that do not currently offer a qualified retirement plan. SIMPLE plans allow employees to defer a specific percentage or dollar amount into a SIMPLE IRA.

Contributions

The current maximum deferrals are as follows:

Catch Up Contributions

If an employee has or will attain the age of 50 during the year, he or she will be allowed to make additional “catch-up” contributions as follows:

Eligibility

In addition to salary deferrals, employers may make an additional contribution to each eligible employee. The employer can choose from the following:

Penalties

If an employee under 59½ withdraws an amount from a SIMPLE IRA before the end of a two-year period following the initial contribution:

This information is for reference only and does not purport to give tax or legal advice.  Please consult your tax or legal professional for more information on this material. 


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