IRA Rules

Archive for October, 2008

Metal Gear Stupid 2, Sons of Bit**

Question: Can one continue contributions to a Traditional IRA past age 70.5 while collecting the RMD at the same time?

I reached age 70-1/2 last year and will collect my first IRA Required Minimum Distribution (RMD) this year. This may be an odd question but can I still make a maximum tax free IRA contribution this year? For me this year, the max is $6,000. OR is it that once you start receiving RMDs past your 70-1/2 birthday, one CANNOT make any more IRA contributions for the rest of their lives?

Answer: Great question! First, recent legislation suspended RMDs for 2009.

Next, you cannot contribute to a traditional IRA for the year in which you turn age 70 1/2, or older. You can, however, contribute to a Roth IRA. Your contribution limit for 2008 is: 100% of earned income, or $6,000 (includes $1,000 catch-up amount), whichever is less.

Hope that helps.

Disclaimer. The information above is for general purposes only and is not be be construed as tax, legal, or specific advice for any individual. Please consult with your professional advisors before you make any decisions regarding your finances.

In Service 401k Distributions to Roth IRAs by Pete Mitchell

Below are the Roth IRA contribution rules.

What are the differences between Roth IRA contribution rules vs traditional IRA Contribution Rules?

One of the differences between a Roth IRA and a traditional IRA is that you may contribute to a Roth IRA regardless of your age (even after age 70 1/2). Another difference is that you are able to leave amounts in your Roth IRA as long as you live. But, in a Roth IRA, you cannot deduct contributions as you can in a traditional IRA. If you meet the requirements of a Roth IRA, qualified distributions are tax free.

When should I contribute to a Roth IRA?

Generally you can contribute to a Roth IRA if you have taxable compensation and your modified adjusted gross income (AGI) is less than the amount shown for your tax filing status (see table below). Compensation is the same as defined for a Traditional IRA.

Below is a table of the Roth IRA contribution limitations based on tax filing status and modified adjusted gross income. The table below is found in the IRS Publication 17 page 125.

If a contribution is made only to a Roth IRA, the maximum contribution limit is the lesser of:

• $4,000 ($5,000 if age 50 or older) or
• your taxable compensation.

There are limits based on your modified adjusted gross income which can reduce your allowable contribution. The table above shows the limitation based on tax filing status and modified AGI.

If you contribute to both Roth IRA and traditional IRAs, your contribution limit for Roth IRAs must be reduced by all your contributions for the year to all IRAs other than Roth IRAs. If you exceed the allowable limit of your contributions to a Roth IRA, you are subject to a 6% excise tax.