Hans Kasper, MS-CPA, PS

The best reason to save money in a retirement account other than the fact that you are saving money is that the account (IRAs included) are protected from lawsuits and bankruptcy if you are a resident of the state of Washington.

Please read the law under the Revised Code of Washington RCW 6.15.020.

The US Supreme court is currently hearing a case on this issue. Please click here to read the case.

If you do not live in the state of Washington, please consult with a pension attorney in your state.

Regular IRA - tax deductible

You can make a tax deductible contribution to an regular IRA if:

you or, if married filing joint, your spouse have earned income,
you were less than age 70-1/2 at the end of the year, and
if you were a participant in a company sponsored retirement plan (the pension plan box on your W-2 was checked) and your modified adjusted gross income was less than $53,000 for 2001 (over that amount the deduction is phased out).

Your spouse may also contribute to her IRA even through she does not have income--you income is attributed to her.

Regular IRAs are wonderful tax planning tools for a low-income person under 70-1/2 who will retire and never be taxable on their income, due to the small amount of it, when they do retire. They can reduce their taxes now by contributing--maybe their adult children can gift them the money--to a tax deductible IRA. Later, when they retire and their income is low, they should be able to withdraw the money tax free.

For the rest of you that have tax deductible IRAs, the income will be taxable when you begin to take it out. If it is taken out before age 59-1/2, then, in addition to regular taxes, there will be a penalty tax of 10% imposed on the gross amount of the withdrawal.

Click here for the 2002 dollar limitations.

Regular IRA - non-tax-deductible

You can make a non-tax-deductible contribution to an regular IRA if:

you or, if married filing joint, your spouse have earned income,
you were less than age 70-1/2 at the end of the year, and
if you were a participant in a company sponsored retirement plan (the pension plan box on your W-2 was checked) and your modified adjusted gross income was greater than $53,000 for 2001 (over that amount the deduction is phased out).

Generally, instead of making this contribution, I would recommend a Roth IRA.

For the rest of you that have made non-tax-deductible IRAs in the past, the withdrawals in excess of your non-tax-deductible contributions will be taxable when you begin to take it out. If it is taken out before age 59-1/2, then, in addition to regular taxes, there will be a penalty tax of 10% imposed on the gross, taxable amount of the withdrawal.

Click here for the 2002 dollar limitations.

Roth IRA - non-taxable

You can make a non-tax-deductible contribution to an Roth IRA if:

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you or, if married filing joint, your spouse have earned income,
you were less than age 70-1/2 at the end of the year, and
if you were a participant in a company sponsored retirement plan (the pension plan box on your W-2 was checked) and your modified adjusted gross income was greater than $53,000 for 2001 (over that amount the deduction is phased out).

Click here for the 2002 dollar limitations.

Roth IRA - conversions from Regular IRAs

Click here for the 2002 dollar limitations.

Simple IRA

Click here for the 2002 dollar limitations.

SEP IRA

Click here for the 2002 dollar limitations.

Rollover IRA

401-k Plan

Click here for the 2002 dollar limitations.

403-b Plan

Click here for the 2002 dollar limitations.