Book Opener

Figure 36.3Type of IRARegular IRARoth IRASimplified EmployeePension Plan (SEP-IRA)Simple IRASpousal IRARollover IRACoverdale EducationSavings AccountFeaturesVarious Types of IRAsl Tax-deferred interest and earningsl $3,000* annual limitl Limited eligibility for tax-deductible contributionsl Contributions do not reduce current taxesl Tax-deferred interest and earningsl $3,000* annual limit on individual contributionsl Withdrawals are tax-free in specific casesl Contributions do not reduce current taxesl “Pay yourself first” payroll reduction contributionsl Pre-tax contributionsl Tax-deferred interest and earningsl Contributions by employer and employeel $7,000 ($10,000 by 2005) maximum employee annual contributionl Tax-deferred interest and earningsl Subject to same rules as Regular IRAl Tax-deferred interest and earningl Both working spouse and nonworking spouse can contribute up to$3,000 each yearl Limited eligibility for tax-deductible contributionsl Contributions do not reduce current taxesl Traditional IRA that accepts rollovers of all or a portion of your taxabledistribution from a retirement planl You can rollover to a Roth IRAl Tax-deferred interest and earningl 10% early withdrawal penalty is waived when money is used forhigher-education expensesl $2,000 annual limit on individual contributionsl Contributions do not reduce current taxes*Increases to $4,000 in 2005, $5,000 in 2008, and indexed for inflation thereafter.Traditional IRA Amounts up to $3,000 (increasing to $5,000 by2008) may be set aside annually for retirement under a traditional IRA.Contributions are tax deductible if your income is below a certainamount, and interest is tax deferred until the money is withdrawn. Unlessused for certain home purchases and higher education costs, fundscannot be withdrawn without penalty before you reach the age of 59 1 /2.When you become 70 1 /2 years old, you must begin taking minimumrequired distributions and paying taxes on the money you withdraw.CHOOSING AN IRAIRAs can be a good way tosave money for retirement.What are the features ofthe Coverdale EducationSavings Account?Chapter 36: Retirement and Wills 777