Summary Table of Traditional IRA and Roth IRA Tax Rules
For your convenience, the table provided below summarizes current 2007 rules for traditional IRAs and Roth IRAs.
You should consult IRS Publication 590, "Individual Retirement Arrangements (IRAs)" and/or a tax professional to confirm this information, before you make a personal finance decision about an individual retirement account.*
The table below has a left-hand column of questions and 12 columns of information. Read the first four questions in the first four rows to determine which of the twelve columns would apply to you. First, choose the "single" or "married, filing jointly" tax filing columns that apply to you. Next, determine whether or not you (and your spouse, if married) are covered by a retirement plan at work. (Read footnote 1.)
Once you have done this, you should have found one "traditional IRA" column and one "Roth IRA" column that apply to you.
Keep track of these two columns and ignore the others. Then, read the remaining questions further down the table to compare the various traditional IRA and Roth IRA rules that affect you. Be careful to distinguish between the rules about whether you can make a contribution and whether an allowable contribution is tax deductible.
Fun huh? The tax rules for traditional and Roth IRAs are very complex, and anyone could easy become confused by these rules. A careful reading of the 104 page IRS Publication 590, "Individual Retirement Arrangements (IRAs)" would make anyone's head hurt.
If our government expects its citizens to act responsibly, to plan rationally, and to provide for an increasing portion of their own future financial welfare in retirement, then it ought to provide its citizens with a straightforward and understandable set of tax incentives for retirement savings and investing. These excessively complex retirement tax incentives are a counterproductive national embarrassment. Our citizens deserve better.
2007 Tax Rules for Traditional IRAs and Roth IRAs
| WHAT IS YOUR FILING STATUS? | SINGLE | SINGLE | SINGLE | SINGLE | MARRIED, FILING JOINTLY | MARRIED, FILING JOINTLY | MARRIED, FILING JOINTLY | MARRIED, FILING JOINTLY | MARRIED, FILING JOINTLY | MARRIED, FILING JOINTLY | MARRIED, FILING JOINTLY | MARRIED, FILING JOINTLY |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| WHAT TYPE OF IRA? | Traditional IRA | Traditional IRA | Roth IRA |
Roth IRA |
Traditional IRA | Traditional IRA | Traditional IRA | Traditional IRA | Roth IRA |
Roth IRA |
Roth IRA |
Roth IRA |
| ARE YOU COVERED BY A RETIREMENT PLAN AT WORK? (footnote 1) | No | Yes | No | Yes | No | No | Yes | Yes | No | No | Yes | Yes |
| IS YOUR SPOUSE COVERED BY A RETIREMENT PLAN AT WORK? (footnote 1) | NA | NA | NA | NA | No | Yes | No | Yes | No | Yes | No | Yes |
| WHAT IS THE ANNUAL UPPER LIMIT ON YOUR CONTRIBUTIONS? (2007) | $4,000 | $4,000 | $4,000 | $4,000 | $4,000 | $4,000 | $4,000 | $4,000 | $4,000 | $4,000 | $4,000 | $4,000 |
| WHAT IS THE UPPER LIMIT ON ADDITIONAL CATCH-UP CONTRIBUTIONS? (2007) | $1,000 | $1,000 | $1,000 | $1,000 | $1,000 | $1,000 | $1,000 | $1,000 | $1,000 | $1,000 | $1,000 | $1,000 |
| WHAT IS THE MINIMUM AGE FOR CATCH-UP CONTRIBUTIONS? | 50 | 50 | 50 | 50 | 50 | 50 | 50 | 50 | 50 | 50 | 50 | 50 |
| WHAT IS THE MAXIMUM AGE TO MAKE CONTRIBUTIONS? | 70.5 | 70.5 | None | None | 70.5 | 70.5 | 70.5 | 70.5 | None | None | None | None |
| MUST YOUR (FAMILY's) COMPENSATION BE EQUAL TO OR GREATER THAN YOUR CONTRIBUTION? (footnote 2) | Yes | Yes | Yes | Yes | Yes | Yes | Yes | Yes | Yes | Yes | Yes | Yes |
| DOES A JOINT COMPENSATION TEST APPLY TO MARRIED TAXPAYERS? | NA | NA | NA | NA | Yes | Yes | Yes | Yes | No | No | No | No |
| COULD HIGHER ADJUSTED GROSS (A.G.I.) INCOME LIMIT YOUR CONTRIBUTION? (footnote 3) | No | No | Yes | Yes | No | No | No | No | Yes | Yes | Yes | Yes |
| WHAT IS THE LOWER A.G.I. BOUND TO BEGIN CONTRIBUTION PHASE-OUT? (2007) | NA | NA | $95,000 | $95,000 | NA | NA | NA | NA | $150,000 | $150,000 | $150,000 | $150,000 |
| WHAT IS THE UPPER A.G.I. BOUND FOR FULL CONTRIBUTION PHASE-OUT? (2007) | NA | NA | $110,000 | $110,000 | NA | NA | NA | NA | $160,000 | $160,000 | $160,000 | $160,000 |
| IS YOUR CONTRIBUTION POTENTIALLY DEDUCTIBLE? | Yes | Yes | No | No | Yes | Yes | Yes | Yes | No | No | No | No |
| MIGHT YOUR DEDUCTION BE LIMITED? | No | Yes | NA | NA | No | Yes | Yes | Yes | NA | NA | NA | NA |
| WHAT IS THE LOWER A.G.I. BOUND TO BEGIN DEDUCTION PHASE-OUT? (2007) | None | $50,000 | NA | NA | None | $150,000 | $80,000 | $80,000 | NA | NA | NA | NA |
| WHAT IS THE UPPER A.G.I. BOUND FOR FULL DEDUCTION PHASE-OUT? (2007) | None | $60,000 | NA | NA | None | $160,000 | $100,000 | $100,000 | NA | NA | NA | NA |
| AT WHAT AGE MUST YOUR DISTRIBUTIONS BEGIN? | 70.5 | 70.5 | None | None | 70.5 | 70.5 | 70.5 | 70.5 | None | None | None | None |
| WHAT TAX RATES WOULD APPLY TO DISTRIBUTIONS? | Ordinary | Ordinary | No taxes | No taxes | Ordinary | Ordinary | Ordinary | Ordinary | No taxes | No taxes | No taxes | No taxes |
Important Notes:
1) A retirement plan at work would be a defined contribution plan or a defined benefit (pension) plan.
Whether or not you participate does not matter. It only matters, if you are covered. The deductibility of your traditional IRA contribution may be affected, if you or your spouse are covered by an employer-sponsored retirement plan at work. Roth IRA contributions are not deductible, so coverage by a plan at work is irrelevant.
2) To make any IRA contribution, you or your spouse must have compensation that is equal to or greater than the contribution. Compensation includes wages, salary, commissions, active self-employment or partnership income (no losses) alimony and separate maintenance payments.
3) If your annual modified Adjusted Gross Income (AGI) exceeds certain levels, IRS rules may limit or eliminate your income tax deductions for your contribution to a traditional IRA account or your contributions to a Roth IRA account.
* YOU SHOULD NOT RELY ON THIS TABLE AS TAX ADVICE. CONSULT YOUR TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF YOUR DECISIONS, INCLUDING THE EFFECTS OF U.S. FEDERAL, STATE, AND LOCAL TAX RULES AND THE EFFECT OF POSSIBLE CHANGES IN LAWS.
| Other articles in this category |
| Traditional versus Roth tax-advantaged plan contributions |
| Factors that tend to favor Roth tax-advantaged plan contributions (Part 1 of 2) |
| Factors that tend to favor Roth tax-advantaged plan contributions (Part 2 or 2) |
| Tax-advantaged investing is very good for most people at most times |
| Summary Table of Traditional IRA and Roth IRA Tax Rules |
| U.S. state personal income tax rates |
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