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If you are age 50 or older you may make an additional "catch-up" contribution of $1,000 for 2009, in addition to the limit discussed above. You may make this "catch-up" contribution whether or not you contributed the maximum to an IRA in the past. The following table shows the year 2009 deduction limits for traditional IRAs for contributors who are active participants in a qualified or employer-sponsored retirement plan.
If you are not eligible to make a deductible IRA contribution, you can still make up to $5,000 in non-deductible contributions, plus the $1,000 catch-up contribution, if applicable, for 2009. (Eligible individuals may want to consider a Roth IRA.) You must file Form 8606 with your tax return when you make a non-deductible contribution (and yearly thereafter for record-keeping purposes). The earnings on these contributions continue to grow tax-deferred until distributed. Spouses who are not active participants in an employer-sponsored retirement plan or nonworking may be able to deduct the full $5,000 annually in a traditional IRA, regardless of the other spouse's participation in a retirement plan. The spouse benefiting from the "spousal" contribution must earn less compensation than the spouse making the contribution. The deduction for the non-participating spouse phases out for married couples filing jointly with an Adjusted Gross Income (AGI) between $166,000 and $176,000. For married taxpayers who file separately, if either spouse is an active participant in an employer-sponsored retirement plan, the deduction is phased out with AGI between $0 and $10,000. Distributions from Traditional IRAs
Depending upon your age at the time of distribution and the amount of nondeductible contributions, the tax consequences vary. However, distributions will most likely be subject to ordinary income tax.
Distributions Before Age 59½
On distributions from your IRA before age 59½, unless an exception applies, you will incur an additional early withdrawal penalty tax of 10% on the amount included as income, as well as applicable income tax. The more commonly used exceptions to the 10% premature distribution penalty are for distributions due to:
Distributions After Age 59½
You may withdraw any or all of your IRA at any time after age 59½ without being subject to a penalty tax.
Distributions After Age 70½
You must begin withdrawals from your IRA by April 1 of the year following the year in which you reach age 70½. Each year, subsequent distributions must be made by December 31. The minimum distribution amount must be in accord with your life expectancy using factors provided in IRS tables. If your sole beneficiary is your spouse who is more than 10 years younger than you, more favorable distribution tables are available under the IRS rules. Failure to take the minimum distribution triggers a 50% penalty on the difference between the minimum required distribution and the actual distribution. The Worker, Retiree and Employer Recovery Act of 2008 waives the requirement to take required minimum distributions for 2009.
Rollovers From Traditional IRAs
Rollover From One Traditional IRA Into Another Traditional IRA You may withdraw all or part of the assets of an IRA and exclude the withdrawal from income if you transfer the assets to another IRA or return the same assets to an IRA within 60 days of the withdrawal. If you make a tax-free rollover, you must wait 12 months before making another from the same IRA or the successor IRA. Distributions that are made pursuant to the required minimum distribution rules are not eligible to be rolled over. Direct transfers from one trustee or custodian to another trustee or custodian are also tax-free transfers. However, because a direct transfer is not actually a rollover, the 12-month limitation does not apply. Rollover From the Traditional IRA Into a Roth IRA Singles and couples filing jointly with adjusted gross income (AGI) not exceeding $100,000 are eligible to roll over part or all of their traditional IRAs to a Roth IRA. Funds may be rolled over from traditional IRAs at any time, but amounts relating to deductible contributions, income and growth will be subject to ordinary income tax. Income recognized from the rollover is not included in the AGI limitation. The income limit is repealed as of 2010. Rollover Strategies Taxpayers may wish to consider certain strategies in order to reduce AGI below the $100,000 rollover limit:
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