Roth IRA

You must receive taxable compensation during the year To contribute to an IRA (Roth or traditional), you must receive taxable compensation during the year. For purposes of IRA contributions, taxable compensation includes wages, salaries, commissions, self-employment income, and taxable alimony or separate maintenance. Other taxable income, such as interest earnings, dividends, rental income, pension and annuity income, and deferred compensation, does not qualify as taxable compensation for this purpose. Your contribution for a given year cannot exceed your taxable compensation for that year.

Tip: The 2006 Heroes Earned Retirement Opportunities (HERO) Act allows members of the Armed Forces to include nontaxable combat pay as part of their taxable compensation when determining how much they can contribute to an IRA (their own or a spousal IRA) in tax years beginning after December 31, 2003. Prior to the Act, a serviceman or woman with only nontaxable combat pay was unable to make an IRA contribution. Service members have until May 28, 2009, to make retroactive IRA contributions for 2004 and 2005, and will have at least one year following the date of their contribution to claim any credit or refund that they may be entitled to for those years. For service members with only nontaxable combat pay, Roth IRA contributions will generally make more sense than nondeductible contributions to a traditional IRA.

Your ability to make annual contributions depends on your income and filing status If you file your federal income tax return as single or head of household and your MAGI for 2008 is $101,000 ($99,000 for 2007) or less, you can make a full contribution to your Roth IRA. Similarly, if you file your return as married filing jointly or qualifying widow(er) and your MAGI for 2008 is $159,000 ($156,000 for 2007) or less, you can make a full contribution. Otherwise, your allowable Roth IRA contribution is reduced or eliminated as follows:

*These income ranges are indexed for inflation each year.

If you are married filing a joint return, you may be able to contribute to a Roth IRA for your spouse even if he or she has little or no taxable compensation. If you are married filing separate returns and you lived apart from your spouse at all times during the taxable year, you are treated as a single taxpayer for purposes of the Roth IRA rules.

Tip: To calculate the exact amount of your allowable Roth IRA contribution, a step-by-step worksheet is available. See IRS Publication 590, Individual Retirement Arrangements (IRAs). Tip: These income limits don’t apply to rollover contributions to your Roth IRA.

You must not have already contributed the annual maximum to your traditional IRA Total contributions to all of your IRAs (traditional and Roth) cannot exceed $5,000 for 2008 ($6,000 if you’re age 50 or older). If you contribute the maximum allowed to your traditional IRA for any year, you cannot contribute to your Roth IRA at all for that year. If you make a partial contribution to your traditional IRA, your allowable Roth IRA contribution for that year is equal to the difference between the annual IRA contribution limit and the amount contributed to your traditional IRA (or vice versa).

Example(s): You have a traditional IRA and a Roth IRA. You contribute $2,900 to your traditional IRA for the year. You can contribute no more than $2,100 to your Roth IRA for that year ($3,100 if age 50 or older). Caution: The Pension Protection Act of 2006 provides that an active reservist or guardsman who receives a qualified reservist distribution can repay all or part of that distribution to an IRA at any time during the two year period beginning on the day after active duty ends (or, if later, the two year period beginning August 17, 2006). The regular IRA contribution limits don’t apply to these repayments. A qualified reservist distribution is a payment from an IRA, or a payment of elective deferrals and earnings from a 401(k) plan or 403(b) plan, to an active reservist or guardsman who is called to duty after September 11, 2001, and before December 31, 2007, for a period in excess of 179 days (or for an indefinite period). Caution: The Pension Protection Act of 2006 allows certain individuals who participated in the Enron Corporation 401(k) plan to make special IRA catch-up contributions of up to $3,000 per year for tax years 2007 through 2009. Taxpayers who make these special contributions aren’t allowed to make age 50 catch-up contributions. Tip: The annual contribution limits ($5,000 in 2008, $4,000 in 2007) don’t apply to rollover contributions.