A few of the more important considerations to keep in mind when choosing the right vehicle for your IRA contributions include:

• Tax Treatment (both at time of contribution and distribution)
• Income Limitations
• Age Limitations
• Required Minimum Distributions
• Early Withdrawal Penalties
• Contributions after 70 1/2
• Beneficiary Tax Consequences

IRA Comparison Chart

This handy comparison chart should help you answer questions you didn’t think to ask and help end some of the confusion. 

Open and print your personal copy of the IRA Comparison Chart here.

Copyright 2008 Forefield Advisors

Keep in mind that as long as you have earned income, anyone can contribute to a Traditional IRA. But …

Just Because You Can, Doesn’t Mean You Should

Just because you are permitted to contribute to a Traditional IRA doesn’t mean your annual contribution is deductible. This depends on your income, filing status, and if you or your spouse are covered by a company retirement plan. If you won’t receive an income tax deduction for your contribution, why not consider a ROTH?

ROTH IRA Guidelines

The ROTH IRA places more restrictions on who is allowed to contribute.  In order to take advantage of  tax-free growth found within the ROTH, you must meet certain income and tax filing guidelines.

If you are single / head of household and your income falls within the range of $101,000 – $116,000 congratulations. You can make a ROTH IRA contribution in 2008.  If you are married, file a joint tax return, and together your income falls within the range of $159,000 – $169,000,  you also can contribute. What if you are married, but file separately? Your income must be below $10,000, a very unlikely circumstance.

Bottom Line?

Assuming you meet the ROTH guidelines and you will not receive a tax deduction for the Traditional IRA contribution, the ROTH IRA may be your best choice.

Other Considerations?

Conventional wisdom tells you to diversify your investments among asset classes.  I agree, but believe diversification should be carried one step further.

Diversify your investments by also considering the tax consequences you will face in retirement.  No one knows what the future tax code will be. Your 401k, 403b, pension, Traditional IRA and perhaps even Social Security benefits are taxable. It is wise planning to take advantage of the tax-free growth of the ROTH IRA if you qualify.

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Please remember!  Information is not knowledge and knowledge is not wisdom. Feel free to post questions or comments.  Consult with a professional before making your decision.