If you haven’t contributed to an individual
retirement account (IRA) yet, do it now.
You have until April 15, 2010, to open and
contribute to an IRA for the 2009 tax year.*
IRAs are a smart way to save for retirement on a tax-favored basis. With a traditional IRA, earnings grow tax-deferred; you’ll pay ordinary income taxes on withdrawals in retirement.** You may even be able to deduct your contribution, saving on your current tax bill.***
With a Roth IRA, you can’t deduct contributions. However, earnings on the account may be withdrawn tax-free if you hold the account for at least five years and are at least age 59½ upon distribution.†
Contribution limits for 2009 and 2010 are $5,000 or earned income, whichever is less. Taxpayers age 50 and older can contribute an additional $1,000. In general, you must have earned income to open an IRA, but nonincome- earning spouses of income earners can open their own IRAs.
Good (Roth) News for 2010
Prior to 2010, taxpayers with modified adjusted gross incomes above $100,000 and married taxpayers filing separately could not convert from a traditional to a Roth IRA. Effective Jan. 1, 2010, anyone can convert to a Roth IRA. Ordinary income taxes will be due on the amount of the conversion, but if you convert in 2010, you may choose to split the tax bill between 2011 and 2012. ††
The new law does not eliminate the income eligibility requirements to open or contribute to a Roth IRA, but that doesn’t prevent you from opening a traditional IRA and then converting it to a Roth.
Start Today
The sooner you start saving, the longer that tax-advantaged compounding can work for you. If you have questions about opening a traditional or Roth IRA or converting to a Roth, contact American First Credit Union at 800/ 290-1112 or visit www.amerfirst.org.
| * | You can make contributions for the 2010 tax year from Jan. 1, 2010, to April 15, 2011. |
| ** | Premature withdrawals are subject to a 10% tax penalty. |
| *** | Deductibility depends on whether you or your spouse participates in an employer-sponsored retirement plan and, if so, your income. |
| † | Nonqualified withdrawals are subject to ordinary income tax plus a 10% penalty. |
| †† | Consult your tax advisor to make sure you meet all qualifications. |
This financial institution does not give tax advice. Consult your tax advisor for information specific to your situation.
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