J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

Chapter 8

IRAs

There are several types of IRAs: Traditional IRAs, Roth IRAs, SIMPLE IRAs, and SEPs. You may personally set up a traditional or Roth IRA with your bank or broker. SIMPLE IRAs (8.18) and SEPs (8.15) are available only if your employer offers such plans. For 2012, the contribution limit for both traditional (8.2) and Roth IRAs (8.20) is $5,000, or $6,000 for individuals who are age 50 or older. Traditional IRA contributions may be fully deductible, partly deductible, or not deductible at all, depending on whether you (and your spouse) have retirement coverage where you work and if so, whether your income subjects you to the deduction phaseout rules (8.4).

Traditional IRA distributions are generally fully taxable and, if made before age 59½, subject to a penalty; see 8.12 for penalty exceptions. Minimum distributions from a traditional IRA must begin after you reach age 70½ (8.13).

Although contributions to a Roth IRA are not deductible, the Roth IRA has a major tax advantage: tax-free withdrawals of earnings may be made after a five-year waiting period if you are over age 59½ (8.23). Tax-free withdrawals of contributions may be made at any time. A traditional IRA may also be converted to a Roth IRA. After a conversion, a Roth IRA may be recharacterized back to a traditional IRA, and subsequently reconverted to a Roth IRA. See the discussion of annual contributions (8.20), conversions (8.21), and recharacterizations and reconversions (8.22).

Low-to-moderate-income taxpayers ...