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CHAPTER 14

distinguishing mark about them. Traditional IRAs are tax deductible. That is, the contribution that you make to your IRA may be deducted from your income tax, which helps you save money on an annual basis, as long as you contribute to a tradi- tional IRA every year. Each family member may have his or her own IRA, no matter how old that person is. However, he or she must have some sort of earned income.

The only exception is that a nonworking spouse may have a tra- ditional IRA account if the other spouse has some sort of earned income.

Special note: Those individuals who have contributed the maximum to their IRAs and are age 50 and older are allowed to “catch up” and contribute more to these accounts. See Table 14.5.

The other features of the traditional IRA are the same as for other types of IRAs. First, you may only contribute $3000 per year per person, right now. (See Table 14.5.) Second, there is a limit to the amount of money you can make per year and still be able to deduct the IRA contribution. You may still be able to make the contribu- tion, just not deduct the amount, be it the full amount or a portion. (See Table 14.6.) Finally, all earnings and gains are accrued on a tax-deferred basis. No tax is paid on the earnings until any distribu- tions are made.

Table 14.5.

IRA Contribution Limits

Year

Without Catch-Up

With Catch-Up

2002–2004

$3000

$3500

2005

$4000

$4500

2006–2007

$4000

$5000

2008 and after

$5000

$6000

*This amount will be adjusted for inflation in $500 increments.

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