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Traditional IRA |
May qualify for tax deduction. |
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Can contribute up to $4,000 for the year, or up to $5,000 if you're 50
or older in 2007; $5,000 or $6,000 if you're 50 or older in 2008. |
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Can take money out for qualified events without penalty. |
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Taxed as income when you start taking distributions. |
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Can start taking money regularly at 59½. |
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Required to start taking money out after age 70½. |
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Can't contribute after age 70½. |
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Roth IRA |
Can contribute up to $4,000 for the year ($5,000 if you're 50-plus) in
2007; $5,000 for the year ($6,000 if you're 50-plus) in 2008. |
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No tax deduction. |
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Can take out the money you've contributed at any time without penalty. |
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Can withdraw earnings after five years for qualified events. |
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Money not taxed when you take it out at retirement. |
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Don't have to take distributions at 70½. |
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Can contribute past age 70½. |
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Income limit: $99,000 to $114,000 for singles; $156,000 to $166,000
for married couples. |
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401(k) |
Contributions taken out of paycheck before payroll taxes are calculated. |
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Can save up to $15,500 for the year ($20,500 if you're 50-plus) in
2007; same limits apply for 2008. |
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Can retire as early as 55. |
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Must take distributions at 70½, unless still working at same company. |
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Can contribute past 70½. |
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Federally protected from creditors. |
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Limited to the plan your employer designs/selects. |
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May or may not be able to borrow. |
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May or may not have matching contributions from employer. |
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Matching may be vested. |
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SIMPLE IRA |
Contributions taken from paycheck. |
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Can contribute 100 percent of income, up to $10,500, in 2007 and 2008;
$13,000 each year for both years if you're 50 or older. |
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Employer matching. |
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Immediately vested. |
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Option for self-employed. |
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SEP-IRA |
Employees can contribute up to $44,000 for the year in 2007; $45,000
for the year in 2008, with annual cost-of-living adjustments for later
years. |
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Functions like an IRA. |
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Option for self-employed. |
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No annual reporting requirements. |
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Solo 401(k) |
Can contribute 100 percent of income, up to $15,500 for the year in
2007 ($20,500 if you're 50-plus). |
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Additional "employer's" contribution of up to 25 percent of yearly
business revenue if incorporated (20 percent if a sole proprietor),
with the 2007 cap set at $45,000. |
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Option for self-employed. |
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Additional paperwork and tax forms required. |
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Roth 401(k) |
Contributions taken out of paycheck. |
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Can save up to $15,500 for the year ($20,500 if you're 50-plus) in
2007; same limits apply for 2008. |
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No immediate tax benefit since money contributed after tax. |
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Contributions still grow tax-free. |
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Money not taxed when you take it out at retirement. |
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Can take distributions when you reach age 59½ and have held account
for five or more years. |
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There are no income eligibility limits for Roth 401(k) plans. |
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Federally protected from creditors. |
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Limited to the plan your employer designs/selects. |
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May or may not be able to borrow. |
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May or may not have matching contributions from employer. |
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Matching may be vested. |
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Relatively new plan option, so not many employers offer it. |
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A similar Roth 403(b) plan exists for workers in the nonprofit sector. |
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