IRA Early Withdrawal
There is no additional 10% tax on early withdrawals from an IRA if you are buying a first home for yourself, your children or grandchildren, or if you are paying higher education expenses for the IRA owner, spouse, child, or grandchild.
The "Roth" IRA is a nondeductible IRA. Taxpayers can contribute up to $5,000 to a Roth IRA within modified adjusted gross income limits. The earnings on contributions to a Roth account generally are not taxed when withdrawn from the account.
Parents can establish educational IRAs for their children under the ages of 18. Any individual (including the child) may make contributions of up to $2,000 per child per year. There is no limit on the number of educational IRAs that can be established for a child. However, total contributions for the child during any tax year cannot be more than $2,000. There is no deduction for this IRA, but withdrawals will be tax-free when used to pay college costs for the IRA beneficiary.
Rolling Your IRA Into a Roth
If you have a traditional IRA and meet the income qualification, you should consider rolling your IRA into a Roth IRA. You will have to pay income tax on the rollover, but the account can escape taxes thereafter. The Roth IRA is very favorable to taxpayers who will be holding it long enough to have a large amount of earnings, which ultimately will be distributed tax-free.
Individual Retirement Arrangement (IRA)
A married couple filing a joint return can contribute up to $5,000 to each spouse's IRA, even if one spouse has little or no earned income. A single person or head of household may also contribute up to $5,000 to an IRA. However, if you will be 50 or older by the end of the year, you can contribute an extra $1,000 for a $6,000 total contribution.