How Funding Works for Individual Retirement Accounts

How Funding Works for Individual Retirement Accounts - your...

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FundingAn IRA can only be funded with cash or cash equivalents. Attempting to transfer any other type of asset into the IRA is a prohibited transaction and disqualifies the fund from its beneficial tax treatment. Rollovers, transfers, and conversions between IRAs and other retirement arrangements can include any asset. The maximum for an IRA contribution in years 2006 and 2007 is 100% of earned income or $4,000, whichever is less, for an individual under the age of 50. Individuals aged 50 and older can contribute up to 100% of earned income or $5,000, whichever is less. For 2008 through 2010, the limit is $5,000 for those under age 50, and $6,000 for those over 50. This limit is for Roth IRAs, traditional IRAs, or some combination of the two. You cannot put more than $5,000 into your Roth and traditional IRA combined ($6,000 for individuals aged 50 or more). For example, if you are 45 and put $3,500 into your traditional IRA this year so far, you can either put $1,500 more into
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Unformatted text preview: your traditional IRA or $1,500 in your Roth IRA. There may be an additional administrative step needed so that the trustee which holds the IRA proceeds actually retitles or transfers the $3,500 Traditional proceeds into the Roth category for their internal bookkeeping to survive an IRS audit. The amount of the IRA contributions (both Traditional and Roth) that can be deducted from current-year taxes is partially reduced for levels of income beyond a threshold, and eliminated entirely beyond another threshold, if the contributor and/or the contributor's spouse is covered by an employer-based retirement plan. The dollar amounts of the thresholds vary depending on tax filing status (single, married, etc.) and on which spouse is covered at work. See IRS Publication 590, "Individual Retirement Arrangements"....
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