An Individual Retirement Account (IRA) is a retirement savings plan available to anyone who earns taxable income during the year. There are restrictions and conditions on the amount that an individual can contribute to each plan. The following five types of IRAs are most important for individuals and married couples:

1) The Deductible IRA
Every individual with taxable income (including wages, salaries, fees, tips, bonuses, commissions, and taxable alimony) is eligible to contribute to a tax-deductible IRA. Here's how it works.

• You reduce your reportable income by the amount of your contribution. For example, if you earn $50,000 per year and do not have a retirement plan at work, you can reduce your reportable income to the IRS by a maximum amount of $2,000 to reflect your IRA contribution for the year. There are some restrictions: for an individual with a retirement plan available at work, the allowable contribution declines to zero between the Adjusted Gross Income (AGI) range of $33,000 and $43,000. A married couple filing a joint return with an AGI between $53,000 to $63,000 is limited as to the amount of their contribution if a retirement plan available at work. However, if there is no retirement savings plan available to the couple at work, each is allowed to contribute the maximum $2,000 to a tax-deductible IRA. If only one spouse has a retirement plan available at work and joint AGI exceeds $63,000, neither can contribute to such a plan. All contributions to a tax-deductible IRA grow tax deferred until withdrawn.
  
  
• An early withdrawal IRS penalty of 10% plus taxes applies to withdrawals that occur prior to the individual attaining age 59 1/2. Minimum distributions from the IRA are required and taxes become due on the entire distribution on April 1 following the year in which the individual reaches age 70 1/2.

2) The Nondeductible IRA
Anyone with a minimum taxable income of $2,000 can contribute to a nondeductible IRA.

• There are no restrictions based on income or whether the individual has a qualified retirement plan at work.
  
  
• The contribution is not deductible for income tax purposes. However, the earnings grow on a tax-deferred basis and become subject to minimum distribution requirements and taxes on all associated earnings beginning April 1 following the year in which the individual reaches age 70 1/2. An early withdrawal IRS penalty of 10% plus taxes apply only to withdrawals of earnings that occur prior to the individual attaining age 59 1/2. What's the reason? Remember that the original contributions were made with after-tax dollars and, as such, cannot be taxed twice.

3) The Roth IRA
A Roth IRA is a nondeductible IRA that grows tax free for the rest of the owner's lifetime.

• Any individual with taxable income can contribute to a Roth IRA provided the AGI is less than $160,000. One can even make a Roth contribution after age 70 1/2 provided that one has taxable income.
  
  
• The maximum allowable contribution is $2,000 for individuals and $4,000 for married couples filing a joint return. The contribution amount declines for incomes in the AGI range of $150,000 to $160,000 for married couples and $95,000 to $110,000 for individuals that are single and head-of-household filers. For married couples filing separately, the allowable AGI range is $0 to $10,000. Couples filing separately with AGI of more than $10,000 cannot make a Roth contribution.
  
  
• A Roth has the added benefit of being available for early withdrawal prior to age 59 1/2 penalty and tax free provided the owner has held the account for at least five years and the withdrawal is used for qualified education expenses. Also, first-time home buyers can access up to $10,000 of profits tax free and penalty free to acquire a principal residence if the account is held at least five years.

4) The Education IRA (EIRA)
Anyone can contribute a maximum of $500 per year to an EIRA for a child up to age 18. However, the contributions must be made by December 31 of each year. Be sure to coordinate contributions, as the total amount allowed from all sources cannot exceed $500 in any given year. Taxes are paid on withdrawal but at the child's rate.

5) The Spousal IRA
The Spousal IRA was designed for the non-working spouse: An employed spouse with a non-working mate can make a $4,000 annual tax-deductible IRA contribution ($2,000 each) if there is no work place retirement plan available. The contribution phases out for a joint AGI in the range of $150,000 to $160,000 if the working spouse has a qualified retirement plan at work. Separate accounts must be established for each spouse, as IRA accounts cannot be held jointly.

	WHICH IRA IS BEST FOR ME?
	That depends on your goals, age, income tax bracket, and how close you are to retirement. The younger you are, the more likely it is that the Roth IRA is your best bet. It will grow tax free for your entire life. Also, if you've held the IRA for five years or more, you can access the funds for your education or to purchase your first home.

THE MARKET IS IN TURMOIL. WHAT SHOULD I DO WITH MY IRA?

If your main reason for investing has not changed, do nothing. Markets go up and down, and reasonable investors know that these fluctuations are normal. Over the long run, the value of your investment will surely increase, as you planned. However, if you are three to five years from retirement, you might consider lowering the risk of your portfolio by reducing the amount of stocks you hold, and increasing your cash and/or bond holdings. You do need to retain some stocks, as inflation and taxes will take their toll on your income during retirement.

Ian D. Quan-Soon, MBA, CFP is President of IQ Financial Services, Inc., a financial planning firm located in the Wall Street area in New York City. The firm specializes in wealth management, and business, retirement and estate tax planning. For further information and updated stock market outlook visit www.IqFinancialservices.Com

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