The Facts About Educational and Roth IRA’s

The Facts About Educational and Roth IRA’s

In 1997 great things came into play for the taxpayers. The Tax Reform Act of 1997, which was inacted by the IRS, allowed single taxpayers and married taxpayers a considerable amount of tax relief for the Educational and Roth IRA’s. Individual Retirement Accounts, also known as IRA’s, are accounts opened in an individual’s name only and provide tax-deferred savings for retirement. The contributions may be fully deductible, partially deductible, or nondeductible.

All IRA’s have the same basic characteristics that enable customers to save money while gaining benefits that may include tax-deferred savings and tax deductions. An IRA is a product in which customers place additional products into, such as CD’s, stocks, bonds and mutual funds. These products are placed into IRA’s to meet customers’ retirement, education, or other future needs. The customers are able to select these products based on their tolerance to risk and their individual investment goals. The IRA will hold these products and provide the potential tax shelter and savings incentives.

In order to explain the great qualities of the Roth IRA and the Educational IRA, you must know just a few things about the Traditional IRA. The Traditional IRA is the original product offered to help individuals set aside funds for retirement. To be eligible to contribute to the Traditional IRA the customer must be 70 1/2 or younger, and have an earned income. With the Traditional IRA any withdrawals are subject to income tax in the year in which they are being withdrawn. In addition there are some penalties which may apply if the individual is under the age of 59 1/2 when the funds are withdrawn. There are only seven ways the customers may withdrawal from their Traditional IRA before age 59 1/2 with out being penalized a 10% premature-distribution penalty. These seven ways would be death, disability, medical expenses over 7.5% of AGI, health insurance premiums for certain unemployed individuals, first time home buyer (up to $10,000), higher education expenses, and substantially equal periodic payments. With the Traditional IRA the maximum contribution allowed is the lesser of earned income or $2,000. This contribution is not tax-deductible (smartmoney, the ira super page, 2000). With a Traditional IRA there are required minimum distributions which must ...

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...two options which they can choose from. The first option is to withdrawal the remaining amount, but it will be subject to income tax and an additional 10 percent tax that represents earnings. The second option is to have the remaining amount rolled over into another IRA. In addition to the two options just discussed the Education IRA can be designated to another beneficiary instead of rolling it over.

Bibliography:

SmartMoney.com (2000). Roth IRAs: You wanted to know [Internet]. Available:

http://www.smartmoney.com/ac/ira/index.cmf?story=know [2000, January 28].

SmartMoney.com (2000). Roth IRAs: To convert or not [Internet]. Available:

http://www.smartmoney.com/ac/ira/index.cmf?story=convert [2000, January 28].

SmartMoney.com (2000). The IRA Super Page [Internet]. Available:

http://www.smartmoney.com/ac/ira/index:cmf?story=supertable [2000, January 28].

TrowePrice.com (2000). Education IRAs [Internet]. Available:

http://www.troweprice.com/college/cpklib2.html [2000, February 8].

Dow Jones Industrial Webcenter (2000). What’s Hot! [Internet]. Available:

http://www.irs.ustreas.gov/plain/hot/not97-603.html [2000, February 7