Types of IRAs

Traditional individual retirement accounts (IRAs) allow you to set aside money pre-tax that can grow in your account tax-free until the money is withdrawn, when it will be subject to your normal tax rate.

Traditional IRA contributions may also be tax-deductible. If you qualify to subtract your annual contribution from your gross income when you file your annual tax return, your IRA is deductible. If not, it's nondeductible.

Deductions for contributions to a traditional IRA are based on your modified adjusted gross income (MAGI). For 2009, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your MAGI is:

• More than $89,000 but less than $109,000 for a married couple filing jointly or a qualifying widow(er)
• More than $55,000 but less than $65,000 for a single individual or head of household
• Less than $10,000 for a married individual filing a separate return

For 2009, if your spouse is covered by a retirement plan at work, but you are not, your deduction for contributions to a traditional IRA is reduced (phased out) if your MAGI is:

• More than $166,000 but less than $176,000 (more than $167,000 but less than $177,000 for 2010)
• Less than $10,000 for a married individual filing a separate return

The amount you can deduct adjusts on a sliding scale. For every additional $1,000 you earn over the limit for the full deduction, you must deduct $500 if you're single and $250 if you're filing a joint return. The balance of your contribution can go into a nondeductible account or a Roth IRA.

For example, if you're married and have a joint MAGI of $90,000, you could contribute $4,500 to a deductible account. The remaining $500 could be invested in a nondeductible account, for a total contribution of $5,000.

If you don't have the option of enrolling in an employer-sponsored retirement plan, either because your employer doesn't offer one or you're ineligible to participate, you can always deduct the full contribution to your IRA, regardless of your income level if you're single. If you're married and your spouse participates in a plan, you can deduct your full contribution if your joint MAGI is $166,000 or less, and a decreasing amount until it reaches $176,000 and you're no longer eligible.

This material is for informational purposes only and Scottrade is not responsible for any errors or omissions. The information is subject to change without notice and should not be construed as a recommendation or investment advice. Please consult your tax or legal advisor(s) for questions concerning your personal tax or financial situation.