Traditional IRA:
Traditional IRAs offer the benefit of tax-deferred investment growth and, for many individuals, tax-deductible contributions. Individuals under age 70 1/2 who have earned income (or whose spouses have earned income) can contribute up to $5,000 for tax year 2008. Generally, you may deduct contributions if you do not have an employer-sponsored retirement plan or if your income is below a certain level. Withdrawals made prior to age 59 1/2 are subject to an IRS 10% penalty and subject to income tax, unless they are used for a first time home purchase or to pay for higher education expenses*. Distributions must begin by age 70 1/2.
Roth IRA:
The Roth IRA offers tax-free investment growth under certain conditions. It allows after-tax contributions of up to $5,000 for tax year 2008 for most individuals. Contributions are non-deductible, but after the account has been open at
least five years, withdrawals are tax and penalty-free for individuals age
59 1/2 or older or for a first-time home purchase*.
Withdrawals prior to age 59 1/2 are penalty-free if
used for a first-time home purchase or to pay for higher education. There
is no maximum age for contributions and no requirement for distributions.
Catch-up Contributions: Traditional IRA owners and Roth IRA owners who are age 50 and older
may make additional annual catch-up contributions of $1,000 for tax year 2008.
Coverdell
Education Savings Account (ESA):
Coverdell ESAs were formerly known as Education IRAs and are a way to save
money for your child's or grandchild's education. Individuals may make non-deductible
contributions of up to $2,000 per child. Withdrawals by the child before
the age of 30 are tax and penalty-free when used for college education expenses*.
Qualifying tax-free distributions include elementary
and secondary school expenses such as tuition, academic tutoring, books,
supplies,
room and board, uniforms and transportation, as well as certain computer
equipment*.
Health Savings Account (HSA):
A Health Savings Account (HSA) offers a way to save for future medical expenses and earn dividends, while enjoying income tax savings and lower health insurance premiums. The advantages of an HSA include: Savings - You can save for future medical expenses while earning dividends.
Insurance Savings - You can save on health insurance premiums by switching to a higher deductible plan.
Tax Savings - With an HSA, there are three ways to save on your taxes*:
<>Tax deductions when you contribute to your account
<>Tax-free earnings on your investment
<>Tax-free withdrawals for qualified medical expenses
Ownership - There are no "use it or lose it" rules for HSAs. Funds remain in the account from year to year just like an IRA, and you can keep your HSA even if you change jobs or change your health insurance.
Security - Your high-deductible health plan and HSA will protect you against costly medical expenses.
* Not intended as tax advice. Please consult a tax professional.
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