Aston Funds

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

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

Traditional vs. Roth IRA
Coverdell Education Savings Accounts
Current Contribution Limits

Retirement

Traditional IRAs

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

Contributions

For the 2008 year and thereafter, you may make an annual contribution of $5,000 or 100% of your compensation, whichever is less, until you reach the age of 70½. For individuals who have reached the age of 50 before the close of the tax year, the contribution limit is increased to $6,000.

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. 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.

Maximum Contribution Limits Update

The Economic Growth and Tax Relief Reconciliation Act (EGTRRA) increased the maximum annual contribution limit for Traditional IRA contributions to :

$5,000 in 2008 and thereafter. If you are age 50 or older catch-up contribution can be made.

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:

$1,000 in 2008 and thereafter

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 2008 or $6,000 if the catch-up applies. 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.

Non-working spouses can also open IRAs, and the annual contribution limit for a married couple filing jointly is $8,000 in total or 100% of earned income, whichever is less for each IRA, with a maximum contribution of $5,000 for 2008 or $6,000 if the catch-up amount applies.

Deductibility and 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.
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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 rather than simply tax-deferred.

Contributions

You may make an annual contribution of $5,000 in 2008 or 100% of your compensation; whichever is less.
Individuals of any age can contribute to a Roth IRA as long as they have earned income and their modified adjusted gross income is below $110,000 (single) or $160,000 (joint). The permitted maximum contribution amount begins to phase out at $95,000 (single) and $150,000 (joint). Please consult your tax adviser or Publication 590 for further details.

You can contribute to both a Traditional IRA and a Roth IRA; however, the total contributions between the two accounts cannot exceed $4,000 in 2006. 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.

Maximum Contribution Limits Update

The Economic Growth and Tax Relief Reconciliation Act (EGTRRA) increased the maximum annual contribution limit for Roth IRA contributions. Currently,

For 2008 the limit is $5,00
Potential increase in increments of $500 in year 2009 and beyond

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 2008 and each year thereafter

After 2008, the contribution will be adjusted for cost-of-living increases.

Withdrawals

When a withdrawal is made from a Roth IRA, it can be tax and penalty free if the account has been open for at least five years and:

the shareholder is 59½ or older,

the withdrawal is being used for a first-time home purchase (a lifetime limit of $10,000 per IRA holder), or

the shareholder dies or becomes disabled

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

Tax-free withdrawals can be taken from a Roth IRA if the individual satisfies certain requirements. Please see your tax adviser for more information.

The Technical Corrections to the Taxpayer Relief Act of 1997 established ordering rules for distributions from Roth IRAs. When you make a withdrawal from your Roth IRA, your contributions are considered the first amounts taken from the account. Once the contributions are exhausted, any conversions would be taken next, then earnings. Roth contributions can be withdrawn at any time penalty- and tax-free.

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Roth Conversion IRAs

A Roth Conversion IRA is simply a Roth IRA that has been converted from a Traditional IRA. 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.

One thing to keep in mind is that if you perform a conversion, you will have to pay taxes on any deductible contributions you made to a Traditional IRA, as well as any earnings in the account.

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 the owner of a business or a sole proprietor, a SEP Plan (Simplified Employee Pension Plan) lets you make tax-deductible contributions for you and your eligible employee(s).

Contributions

For annual contributions:

The maximum contribution for a SEP Plan is the lesser $45,000 or 25% of your compensation for the plan year 2008.

Contributions are based on a written allocation formula.

Employers - Establishing a SEP Plan

To establish a new SEP Plan, you must do the following:

Adopt a SEP plan agreement deciding the eligibility requirements.

The SEP agreement must be completed and signed by your tax return due date plus extensions.

A copy of the completed agreement must be provided to all of your eligible employees.

In addition, you and each of your eligible employees will need to establish a SEP IRA, because it is the funding vehicle for a SEP Plan.

While you are not required to fund the SEP Plan every year, in years that you choose to do so, you will make contributions, directly, into the SEP IRA of yourself and all eligible employees. Once established and funded, all of the rules that apply to a SEP IRA will apply.

A SEP IRA is a Traditional IRA that accepts 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 is subject to your individual tax filing deadline without extensions.

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SIMPLE Plans

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. SIMPLE plan allow employees to defer a specific percentage or dollar amount into a SIMPLE IRA. Deferrals reduce the amount of taxable income for the year of the deferral, much like a deductible IRA.

Contributions

The current maximum deferrals are as follows:

$10,500 in 2007 and 2008, adjusted by COLA for years beyond

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:

$2,500 in 2007 and beyond

Cost of living allowance (COLA) increases in $500 increments beginning in 2007

Eligibility

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

A matching contribution of up to 3 percent of an employee’s compensation or an across the board non-elective contribution of 2 percent of compensation for all eligible employees

The employer must notify the employee which contribution type, matching or non-elective, will be made for the following year 60 days before the year begins.

Penalties

While very similar to Traditional IRAs after the contributions have been made, one significant difference is a higher penalty for early distributions. If an employee under 59½ withdraws an amount from a SIMPLE IRA before the end of a two-year period following the initial contribution:

the distribution amount will be subject to an additional tax (penalty) of 25%, instead of 10 percent, unless the distribution is due to death, disability, expenses for higher education, the purchase of a first home or certain other qualifying reasons.

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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Traditional vs. Roth IRA

	Traditional IRA	Roth IRA
Taxes	Allows you the benefit of tax deferred growth on your investments and the possibility of tax-deductible contributions	Contributions are always made on an after tax-basis
Maximum Contributions	$5,000 in 2008	$5,000 in 2008 or 100% of your annual compensation: Whichever is less
Catchup- Contributions	$1,000 in years 2006 and each year thereafter	$5,000 in 2008
Restrictions	Cannot contribute if you will be 70 ½ by the end of the year Must have earned income	Not available for taxpayers with Modified Adjusted Growth Income over $110,000 (single) and $160,000 (joint) Partial Contributions are allowed for Modified Adjusted Growth Income between $95,000-$110,000 if single, and $150,000-$160,000 if married filing jointly Must have earned income

Coverdell Education Savings Accounts

Education Savings Accounts formerly called Education IRAs could only be used for “qualified higher education expenses.” These were expenses for tuition, fees, books, supplies and equipment required for enrollment or attendance of the designated beneficiary at an eligible post secondary educational institution.

Education Savings Accounts may also be used for expenses related to attendance at either a public or private elementary or secondary school. Qualifying expenses now include, in addition to those previously described:

academic tutoring

special needs services

uniforms

transportation

educational computer technology or equipment and Internet access

Until withdrawn for such expenses, the earnings accumulate on a tax-deferred basis. When used for qualifying educational expenses, the earnings on an Education IRA are tax-free.

Contributions - the deadline for funding your 2008 IRA is April 15, 2009

Education Savings Accounts now allow you to make annual non-deductible contributions of up to $2,000 on behalf of any child (referred to as a “designated beneficiary”) under age 18 to pay for certain qualifying educational expenses.

Currently, married individuals (filling a joint tax return) may make the following contributions:

Maximum $2,000 contribution per designated beneficiary when their joint Modified Adjusted Gross Income (MAGI) is 190,000 or less. The limit is reduced and gradually phased out for joint filers when their combined MAGI is between $190,000 and $220,000.

For single individuals, the phase out begins with MAGI of $95,000 and ends at $110,000. When the couple’s, or individual’s, income reaches or exceeds the upper limit, the couple or individual may not fund an Education Savings Account.

The law now allows contributions for individuals with special needs beyond age 18. In addition, a deemed distribution of any balance in an Education Savings Account does not occur when a special needs beneficiary reaches age 30 as it did in the past. Special needs beneficiaries are generally described as individuals with certain mental or physical impairments.

Frequently Asked Questions on Coverdell Education Savings Account

Q: For whom may a Coverdell ESA be established?

A: A Coverdell ESA may be established for the benefit of any child under the age of 18. Contributions to a Coverdell ESA are not permitted after the Designated Beneficiary reaches his/her 18th birthday.

Q: How much may be contributed to a Coverdell ESA on behalf of a Designated Beneficiary?

A: For tax year 2002 and thereafter, the maximum contribution limit per year is $2,000 in aggregate contributions made for the benefit of any Designated Beneficiary. Contributions may be made into a single Coverdell ESA or into multiple Coverdell ESAs for the benefit of any one Designated Beneficiary.

Q: May Contributions other than cash be made to a Coverdell ESA?

A: No. Coverdell ESAs are permitted to accept contributions made in cash only.

Q: May contributors take a deduction for contributions made to a Coverdell ESA?

A: No. Contributions to a Coverdell ESA are not deductible. Therefore, contributions to a Coverdell ESA create “basis” in the account. This means that any distributions that are not used for qualified education expenses are taxable only with respect to any earnings on the contributions.

Q: May a Designated Beneficiary contribute to his/her own Coverdell ESA?

A: Yes

Q: Does a taxpayer have to be related to the Designated Beneficiary in order to contribute to the Designated Beneficiary’s Coverdell ESA?

A: No

Q: Is the contributor to a Coverdell ESA required to have compensation or earned income in order to make contributions?

A: No. The contributor (whether an Individual or an entity) is not required to have earned income or compensation.

Q: What happens to the assets remaining in a Coverdell ESA after the Designated Beneficiary finishes his/her education?

A: There are two options. The amount remaining in the account may be withdrawn for the Designated Beneficiary. The Designated Beneficiary will be subject to both income tax and the additional 10 percent tax on the portion of the amount withdrawn that represents earnings if the Designated Beneficiary does not have any qualified education expenses in the same taxable year he/she makes the withdrawal. Alternatively, if the amount of Designated Beneficiary’s Coverdell ESA is withdrawn and rolled over (or transferred) to another Coverdell ESA for the benefit of an eligible member for the Designated Beneficiary’s family, the amount rolled over or transferred will not be taxable.

Q: Rather than rolling over money for one Coverdell ESA to another, may the Designated Beneficiary of the account be changed from one Designated Beneficiary to another without triggering a tax?

A: Yes, provided: (1) the terms of the particular trust of custodial account permit a change in Designated beneficiaries, and (2) the new Designated Beneficiary has not attained age 30 and is a member of the previous Designated Beneficiary’s family.

Q: May contributions be made to both a qualified state tuition program and a Coverdell ESA on behalf of the same Designated Beneficiary in the same taxable year?

A: Yes. The excise tax prohibiting contributions to both a Coverdell ESA and a qualified state tuition program was repealed for 2002 and forward. Therefore, contributions may be made to a Coverdell ESA on behalf of a Designated Beneficiary during the same taxable year in which any contributions are made to a qualified state tuition program on behalf of the same Designated Beneficiary. However, if distributions from a Coverdell ESA and a qualified state tuition program exceed the Designated Beneficiary’s qualified education expenses for the year, the Designated Beneficiary is required to allocate the expenses between the distributions to determine the amount includible in gross income, if any.

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.

Current Contributions Limits

	2008
Traditional IRA	$5000
Roth IRA	$5000
SEP Plan	Lesser of $45,000 or 25% of your compensation
SIMPLE Plan	$10,000
Education Savings Account	$2,000*

** For more specific details on Education Savings Account contribution limits please visit our Education Savings Account page.