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IRA Guide (updated 04.28.06)

Tax-deductible IRA
Who's Eligible	In tax-year 2005, eligibility phases out for individuals with maximum annual gross income or MAGI between $50,000 and $60,000 and for married couples with MAGI between $67,000 and $80,000 (in 2007). No income cap for singles not covered by an employer-sponsored retirement plan or for married couples when neither participates in such a plan. If only one spouse participates in an employer-sponsored plan, deductible IRA eligibility phases out between MAGI of $150,000 and $160,000 for uncovered spouse, between $70,000 and $80,000 for covered spouse ($65,000 and $75,000 in 2004).
Annual Contribution	For 2006-7, the limits are $4,000 ($8,000 for a married couple) and $5,000 (for those over 50 years of age).
Withdrawals	Withdrawals taxed as income. Penalty-free withdrawals permitted before age 59 1/2 for first-time home purchase up to $10,000, higher education expenses or in event of disability or death.

Roth IRA
Who's Eligible	Eligibility phases out between MAGI of $95,000 and $110,000 for singles, and $150,000 and $160,000 for married couples.
Annual Contribution	For 2006-7, the limits are $4,000 ($8,000 for a married couple) and $5,000 (over the age of 50 years).
Withdrawals	Tax-free and penalty-free withdrawals of earnings plus contributions after five years if you are 59 1/2 or in the following circumstances: death, disability or for first-time home purchase up to $10,000. Penalty-free, but not tax-free withdrawals permitted before age 59 1/2 for higher education expenses.

Nondeductible IRA
Who's Eligible	Everyone who has earned income.
Annual Contribution	For 2006-7, the limits are $4,000 ($8,000 for a married couple) and $5,000 (if you are over 50 years of age).
Withdrawals	Withdrawals of earnings taxed as income. Penalty-free withdrawals permitted before age 59 1/2 for first-time home purchase up to $10,000, higher education expenses or in event of disability or death.

Deductibility

Your IRA is fuly deductible if neither you nor your spouse is using an employed sponsored retirement plan. Your adjusted gross income does not matter.

Your adjusted gross income or AGI comes into play if one spouse doesn't work or does not have an employer based retirement plan available to them. In this case, the joint AGI needs to be $150,000 or less. That deductibility is phased out above that line however. Consult a tax planner if you are unsure.

Once again, your AGI comes into play if you are using an employer sponsored retirement plan. Depending on your AGI, you may be able to deduct all of your traditional IRA contributions. In 2007, the ceiling for couple's AGI will reach $80,000. Once the joint income rises above this line, your ability to deduct your traditional IRA diminishes.