This account offers tax-deferred earnings and possibly tax-deductible contributions if you meet the requirements. If you and/or your spouse actively participate in an employer-sponsored retirement plan, you can deduct contributions only if your income is below certain limits. If you are not participating in a retirement plan, your Traditional IRA contribution is deductible regardless of income. To make tax-year contributions to a Traditional IRA, the owner must be younger than 70 1/2 for the entire year and have earned income. The annual contribution limit is $5,000 or 100% of earned income, whichever is less. Once the account owner reaches the age of 70 1/2, he/she must begin to withdraw the funds. Please verify with your tax advisor.
Contributions are not tax-deductible, however, you can withdraw contributions and earnings from a Roth IRA tax-free. The account allows earnings to grow tax-free, and there is no age requirement to start distributions from this account. The Roth IRA definitely has some benefits over the Traditional IRA. Please verify with your tax advisor.
The Taxpayer Relief Act of 1997 makes it possible for parents to establish Education IRAs for the benefit of their children or grandchildren under the age of 18. Education IRAs must be created exclusively for the purpose of paying qualified higher education expenses of a child. Contributions to an Education IRA are nondeductible and are limited to a maximum of $2,000.00 per child per year.