What's the difference?
Traditional IRA - The traditional IRA is an account which allows you to defer taxes on your earnings until they are withdrawn. Also, certain contributions are tax deductible in the tax year for which they are made.
Roth IRA - The Roth IRA is a nondeductible account that features tax-free withdrawals for certain distribution reasons after a five-year holding period. Since Roth IRA contributions are nondeductible and taxed in the year they are earned, people who expect to be in a higher tax bracket when they retire may benefit more from these accounts than from a traditional IRA.
Am I Eligible for Either Account?
Traditional IRA - If you are under age 70 1/2 for the entire tax year and have earned income (or your spouse has earned income), you are eligible to establish a traditional IRA, even if you already participate in any type of government plan, tax-sheltered annuity, simplified employee pension (SEP) plan, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE), or qualified plan (pension or profit sharing) established by an employer.
Roth IRA - Basically, there are two requirements for eligibility to contribute to a Roth IRA: you must have earned income (or your spouse) must have earned income, and your modified adjusted gross income (MAGI) cannot exceed certain limits (see the Single / Married, Joint Filers table below).
How Much Can I Contribute?
Beginning in 2002, deposits for tax year 2002 are as follows:
The Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001 increased the contribution amounts for both traditional and Roth IRAs. EGTRRA further increased contribution amounts for IRA owners who attain age 50 or older by the end of the year, allowing them to "catch-up" on their lost retirement savings.
Tax Year |
Standard Limit |
Catch-up Amount |
Total Limit for Age 50 and Over |
2002 - 2004 |
$3,000 |
$500 |
$3,500 |
2005 |
$4,000 |
$500 |
$4,500 |
2006 - 2007 |
$4,000 |
$1,000 |
$5,000 |
2008 |
$5,000 |
$1,000 |
$6,000 |
2009 and thereafter |
$5,000 + COLA* |
$1,000 |
$6,000 + COLA* |
You can contribute the lesser of the amount applicable to you each year or 100 percent of your earned income. The chart shows the aggregate amount that you can contribute to any Roth and / or traditional IRA for each year. For example, if you are younger than age 50 and contribute $500 to a traditional IRA, the most you could contribute to a Roth IRA is $2,500 for 2002.
Roth IRA contributions are further limited by your MAGI.
These prescribed:
Single Filers |
MAGI of $95,000 or Less |
MAGI Between $95,000 and $110,000 |
MAGI of $110,000 or More |
Full Contribution |
Partial Contribution |
No Contribution |
Married, Joint Filers
|
MAGI of $150,000 or Less |
MAGI Between $150,000 and $160,000 |
MAGI of $160,000 or More |
Full Contribution |
Partial Contribution |
No Contribution |
How Do I Find Out More About Traditional and Roth IRAs?
See any of our IRA representatives. We will explain the nature of these accounts in more detail and help you complete the forms necessary to establish your traditional and / or Roth IRA.
This information is effective for tax-year 2002 and thereafter. This information is intended to provide general information concerning IRAs. It is not intended to provide legal advice or to be a detailed explanation of the regulations covering these accounts or how they may apply to your individual circumstances. For specific information, you are encouraged to consult your tax or legal professional. IRS Publication 590, individual Retirement Arrangements, and the IRS' web site, www.irs.gov , may also provide helpful information.
Since First Federal Savings Bank of Virginia is a small bank, dedicated to serving the needs of our local communities, deposit accounts and loan applications are accepted only from residents of the communities served by our branch offices and their surroundings.
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