1. Individual Retirement Account (IRA) pp. 628-630…

2. Definition It’s an ACCOUNT It’s NOT employer-sponsored Contributions MAY be tax deductible Earnings grow Tax-Free Withdrawals may be taxed at ordinary rates Early withdrawal penalties

3. Self-Directed Account Freedom to select your investments within your IRA Use care in selecting

4. Major IRA Types Deductible (Traditional) Roth After-Tax Education

5. Deductible (Traditional) IRA Contributions deductible (if no employer plan or if combined AGI< $52K) Maximum contributions of up to $5000 per year by 2008 May make penalty-free withdrawals at 59 ½ Must start withdrawals by 70 ½ Penalty-free early withdrawals allowed for 1 st time home, education, & medical costs… Withdrawals are taxed at ordinary income tax rate

6. Roth IRA Allowed regardless of employer retirement plan or pension status Contributions NON-deductible Contributions may be made by couples with AGI<$150K Earnings grow tax-free Withdrawals are tax-FREE, if age 59 ½ and acct open for at least 5 years NO requirement that you must begin withdrawals by age 70 1/2 Early withdrawal penalties / exceptions are same

7. Non-Deductible (After Tax) IRA Open to anyone…no income or employer restrictions. Contributions not deductible. Earnings grow tax-free Withdrawals at age 59 ½ taxed at ordinary income tax rates Early withdrawal penalties apply

8. Education IRA Purpose to fund future education expenses Set up for child under 18, by couples with AGI < $150K Non-deductible contributions of $2000 per child. Earnings grow tax-free. Withdrawals are TAX-FREE (if used for qualifying education expenses). Withdrawals must be made by age 30

9. Roth vs. Traditional Which is better?