• Traditional IRA
• SEP-IRAs

It seems that IRA's are the new hot topic. The much publicized Roth IRA sparked a renewed interest in retirement plans a few years ago that is still gathering momentum. In fact, the industry is buzzing once again with anticipation of proposals to enhance IRA's, making them even more attractive.

With the creation of the Roth IRA as a powerful alternative to the Traditional IRA, some people question whether it makes sense for anyone to have one. This decision requires some consideration, but one thing is clear: you're smart to contribute to some kind of IRA - consistently.

Which IRA is the best for you? 

The debate continues, but most wage earners have concluded:
1. If you can deduct your Traditional IRA contribution (see chart below) you may want to take advantage of the tax deduction now.
2. If you are unable to deduct in a Traditional IRA but qualify to contribute to a Roth IRA, that may be the way to go.
3. If the IRA deduction and the Roth IRA don't apply to you, many people contribute to their Traditional IRA on a non-deductible basis. 

Follow the rules below to evaluate your eligibility.  The income eligibility limits for universal deductibility will increase gradually according to the following schedule: 
 

	Joint Returns (AGI)*	Individual Returns (AGI)*
2002	$54,000.00 - $64,000.00	$34,000.00 - $44,000.00
2003	$60,000.00 - $70,000.00	$40,000.00 - $50,000.00
2004	$65,000.00 - $75,000.00	$45,000.00 - $55,000.00
2005	$70,000.00 - $80,000.00	$50,000.00 - $60,000.00
2006	$75,000.00 - $85,000.00	$50,000.00 - $60,000.00
2007+	$80,000.00 - $100,000.00	$50,000.00 - $60,000.00

 
* AGI is usually found on the bottom line of the front page of the 1040 Form. 

• You may be able to deduct your full contribution if your Adjusted Gross Income did not exceed $34,000 (for 2002) for individuals or $54,000 (for 2002) for married couple’s filing jointly.
• All working individuals and their spouses can contribute $3000 to a Traditional IRA but not necessarily deduct it as above.  If the contribution is non-deductible and your AGI is less than $150,000- $160,000, the Roth IRA may be a better alternative.
• If you as a single taxpayer were not an active participant in any type of tax qualified retirement plan (such as 401(k), Profit Sharing Plan, ESOP, Pension, SEP-IRA, Keogh, or others) then, regardless of your income level you can deduct from Federal Income Tax the full amount of the IRA contribution you are entitled to make.
• If your spouse is covered by an employer plan but you are not, you can contribute and deduct the $3000 Traditional IRA contribution with an AGI upper limit of $150,000 - $160,000.  The amount that is deductible is reduced in steps of 30% of the AGI over the threshold.  Deductibility stops completely when your AGI as a joint filer exceeds $160,000.
• If both spouses are covered and the AGI exceeds the maximum listed above, then neither can deduct any of the Traditional IRA contribution.

1. Take the Ceiling Amount 
2. Subtract  AGI
3. Multiply the result by 30%
4. Round the result up to the nearest $10; subject to a $200 minimum  

How does all of this effect you?

The descriptions provided herein are intended to provide background information about IRAs.  It is not a complete review of all the legal and tax laws pertinent to these plans.  Clients are urged to consult with their legal and/or tax advisors for answers to all technical and tax law-related questions.