Comparison of IRA Limits

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1 Comparison of IRA Limits REPORT Prepared for: Sam Sample 3/29/2011 Prepared by: Benjamin Edwards Financial Consultant

2 CONTENTS Overview...3 Quick Comparison of Traditional. and Roth IRAs...5 Personal. Data Assumptions...6 Results...7. Important Disclosure Information...8 2

3 OVERVIEW An individual retirement account or annuity (IRA) was once viewed primarily as a personal retirement plan or tax shelter. With the introduction of the Roth IRA, however, the benefits of an IRA are significantly enhanced and diversified. IRAs may now be appropriate vehicles for the accumulation of funds for certain qualified expenses as well as for retirement savings. This report explains the eligibility requirements for both Roth and traditional IRAs, compares the basic provisions, and displays the maximum limits for deductible contributions. Traditional IRA A traditional IRA is an individual retirement arrangement that allows you to make contributions to your account until the year in which you attain age 70 ½. The advantages of a traditional IRA are: You may be able to deduct some or all of your contributions to it, depending on your circumstances. Generally, amounts in your traditional IRA, including earnings and gains, are not taxed until they are distributed. Roth IRA A Roth IRA 1 is a type of IRA that also provides for the tax-free savings. However, while funding is always done with after-tax dollars (no deduction on federal tax return), qualified distributions from a Roth IRA are tax-free. Under a Roth IRA You can make contributions after age 70 ½ with earned income No required minimum distributions at age 70 ½ Qualified tax-free distributions to you Qualified tax-free distributions to your beneficiaries Contributions to an IRA Both a traditional IRA and a Roth IRA may be set up at any time and contributions can be made for the year at any time during the year or by the due date for filing your federal tax return for that year, not including extensions. The maximum contribution that you may make is the same for both the Roth IRA and the traditional IRA. In 2010 and 2011, the general limit is $5,000 (or $6,000 if you are age 50 or older). This contribution limit is subject to annual cost-of-living increases. To establish either a Roth IRA or a traditional IRA, you must earn income; the annual contribution is limited to the lesser of the dollar maximum above or the amount of your earned income for the year. If you have more than one IRA, the limit applies to the total contributions made to all your IRAs for the year. Deductible Limits You can have a traditional IRA whether or not you are covered by any other retirement plan. However, you may not be able to deduct all of your contributions if you or your spouse is covered by an employer retirement plan. If you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified Aggregate Gross Income (AGI) is: More than $89,000 but less than $109,000 in 2010 ($90,000 to $110,000 in 2011) for a married couple filing a joint return or a qualifying widow(er) More than $56,000 but less than $66,000 in 2010 or 2011 for a single individual or head of household, or Less than $10,000 in 2010 or 2011 for a married individual filing a separate return. If you either live with your spouse or file a joint return, and your spouse is covered by a retirement plan at work, but you are not, your deduction is phased out if your modified AGI is more than $167,000 in 2010 ($169,000 in 2011) and but less than $177,000 in 2010 ($179,000 in 2011). If your modified AGI is $177,000 or more in 2010 ($179,000 in 2011), you cannot take a deduction for contributions to a traditional IRA. 1 The Roth IRA is named in honor of the late Sen. William V. Roth (R-Del.), a longtime proponent of IRAs and the legislator instrumental in the passage of the Roth IRA law in

4 OVERVIEW (continued) A Roth IRA contribution limit is reduced (phased out) in the following situations. Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $167,000 in 2010 ($169,00 in 2011). You cannot make a Roth IRA contribution if your modified AGI is $177,000 or more in 2010 ($179,000 or more in 2011). Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2010 and your modified AGI is at least $105,000 in 2010 ($107,000 in 2011). You cannot make a Roth IRA contribution if your modified AGI is $120,000 or more ($122,000 in 2011). Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than $0. You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more. Your modified AGI is your adjusted gross income for the year without taking into account any of the following: IRA deductions Student loan interest deductions Tuition and fees deductions Domestic production activities deductions Foreign earned income exclusions Foreign housing exclusion or deductions Excludable qualified savings bond interest. Excluded employer-provided adoption benefits. 4

5 QUICK COMPARISON OF TRADITIONAL AND ROTH IRAS Traditional IRA Roth IRA Tax advantage Tax-deferred earnings Tax-free earnings Eligibility You must have earned income No maximum income limit You must be under age 70 ½ You must have earned income Subject to certain income limits Maximum annual contribution $5,000 for 2010 and 2011 ($6,000 if age 50 or older) $5,000 for 2010 and 2011 ($6,000 if age 50 or older) depending on income Tax deductibility of contributions If you are not covered by an employer-sponsored retirement plan, contributions are fully deductible regardless of income. If you are covered by an employer-sponsored retirement plan, your deductible amount depends on your annual income. Taxes on distributions Ordinary income tax on earnings and deductible contributions. No federal tax on nondeductible contributions. State taxes may apply. Penalty for early withdrawal 10% federal penalty tax on distributions before age 59 ½ unless an exception applies Contributions are not deductible Distributions from contributions are tax-free. Distributions from earnings are not subject to federal tax if your Roth IRA has been open for at least five years AND you are over age 59 ½, the distribution is taken after your death or disability, or for a first-time home purchase ($10,000 liftetime maximum). State taxes may apply. No penalty on distributions from contributions 10% federal penalty tax on distributions of earnings before age 59½ unless an exception applies Required minimum distributions After age 70 ½ None 5

6 PERSONAL DATA ASSUMPTIONS The following information has been used to prepare this illustration: Primary Account Holder Information Name of account holder Sam Sample Date of birth 1/1/1968 Current contribution year 2011 Total compensation for the contribution year $100,000 Filing status Married filing jointly Covered by an employer retirement plan for the contribution year? Yes Spouse covered by an employer retirement plan for the contribution year? No Modified adjusted gross income for the contribution year $90,000 Any income from the conversion of an IRA to a Roth IRA, rollover from a qualified retirement plan to a Roth IRA, or a minimum required distribution from an IRA for the contribution year Modified Adjusted Gross Income for 2011 For traditional IRA deduction For Roth IRA $0 $90,000 $90,000 6

7 RESULTS: IRA Contribution Limits for 2011 Based on the information provided, you may make a maximum IRA contribution (Traditional and Roth combined) of $5,000 for Traditional IRA You may deduct up to: Roth IRA $5,000 $5,000 $5,000 Your contribution may be deposited any time up until Tuesday, April 17, You should consult with your tax advisor regarding your individual circumstances, including eligibility to make a contribution, and the availability of a deduction beforeyou establish or contribute to an individual retirement account. 7

8 IMPORTANT DISCLOSURE INFORMATION Pershing makes this calculator available to your financial institution for its use, and Pershing LLC and its affiliates do not warranty, guarantee or make any representations, or make any implied or express warranty as to the accuracy, completeness or timeliness of the information and tools herein and specifically disclaim any responsibility and liability with regard to the use of the information and tools herein by any and all users of such information and tools. Pershing LLC and its affiliates have no duty, responsibility, or obligation to update or correct any information or tools provided herein. Tax laws are complex and subject to change. The information contained herein is based on current federal tax laws in effect at the time it was written. Pershing LLC and its affiliates do not provide tax or legal advice. The information and tools herein were not intended nor written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. The information provided and tools are not intended to be used as or provide investment advice to individuals. Individuals are urged to consult their tax or legal advisors to understand the tax and related consequences of any actions or investments described herein. Wealth Management Systems, Inc. is the sole copyright owner of the software, including the accompanying materials and all documents generated by the Software. You may copy the documents generated by the Software and share such documents with your clients, provided that each copy includes the copyright, trademark or service mark notices or attributions as they appear on the pages copied. Except as stated above, reproduction or duplication by any means of the Software or any accompanying materials or the documents, without the written permission of Wealth Management Systems Inc., is strictly prohibited and in violation of federal copyright laws. 8

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