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IRAs, Roth IRAs, 401(k)s, (oh, my!) Updated for 2008

Changes to the tax laws and the variety of options available can be quite confusing, so let me spell out the differences between these retirement account options for you:
Traditional IRA - you may contribute to this on a pre-tax basis (i.e. you take the value of your IRA contribution off your income when paying your taxes) if, as a single your income is under $63K (Partial deduction is allowed for income starting at $53K) or under $103K filing joint (Partial deduction is allowed for income starting at $83K). Above these limits, you can make the contribution on an after tax basis. The maximum IRA deposit for 2008 is $5000 if you are 49 or under at year end, or $6000 if you turned 50 this year. You must start to take RMDs (required minimum distributions) the year you turn 70-1/2. With limited exceptions, you may not withdraw any money before age 59-1/2 without a 10% penalty.
Roth IRA - you may contribute to a Roth IRA if, as a single your income is under $116K (Partial deduction is allowed for income starting at $101K) or under $169K filing joint (Partial deduction is allowed for income starting at $159K). The maximum IRA deposit for 2008 is $5000 if you are 49 or under at year end, or $6000 if you turned 50 this year. The beauty of the Roth is that while this money goes in post-tax (i.e. it's money you've already paid taxes on) it will not be taxed at withdrawal. No minimum withdrawals at age 70-1/2 are required. This is an excellent vehicle to pass wealth on to your heirs as they will not have to pay any tax on the withdrawals they will take during their lifetime. (estate taxes may still apply)
401(k) - this is likely the most attractive choice, if your employer offers it. Money is deposited pre-tax (up to $15.5K if you are 49 or under at year end, or $20.5K if you turned 50 this year). Most 401(k)s have a matching provision, so you will get an immediate return, typically dollar for dollar up to the first 3-5% you deposit. Even if you are currently paying off other debts, it's worth considering saving an amount to capture the matching contribution. If you retire early, you may take withdrawals without penalty at age 55. (to be clear, you must be 55 or older at the time of separation from company for this to be penalty free)
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