Plans for Individuals
SEP IRA
How they work: You invest after-tax money into a Roth but earnings grow and are taken later tax-free.Contribution limits: Individuals can save up to $4,000 in 2007. If you're 50 or older, you can stash an additional $1,000.
Income eligibility requirements: Eligibility phases out between $99,000 and $114,000 for single tax payers and between $156,000 and $166,000 for married couples filing taxes jointly.
Warnings: You must wait until you're 59½ to withdraw from a Roth IRA or you'll owe a 10 percent penalty. However, unlike other IRAs, you can leave assets untouched as long as you want, says Ed Slott, a CPA and editor of www.irahelp.com.
Who they're for: Anyone who meets the income requirements to participate. Roth IRAs often are used by individuals who have maxed out their 401(k) plans and need another way to save for retirement.
Deductible IRA
How they work: Contributions are made with after-tax dollars, and individuals claim a tax deduction for their contributions. Earnings grow tax-deferred and are subject to income taxes when they're withdrawn.
Contribution limits: Individuals can save up to $4,000 in 2007. Those who are 50 or older by the end of the year can put away an additional $1,000.
Income eligibility requirements: There's no income limits to participation unless you're enrolled in a company retirement plan. If you are covered by a company plan, eligibility for full contributions phase out for single tax payers with an adjusted gross income between $52,000 and $62,000.
For married couples filing a joint tax return (and who are both covered by a company plan), the phase-out is between $83,000 and $103,000. The phase-out requirement for a non-working spouse who files a joint return with a working spouse covered by a company plan is $156,000 to $166,000.
Warnings: You will owe a 10 percent penalty if you cash out before age 59½. You also must begin withdrawing money by age 70½.
Who they're for: Anyone looking for tax-friendly opportunities to save but who isn't covered by a company plan or doesn't qualify for a Roth. Individuals who think they'll be in a lower tax bracket in retirement may consider these, too.
Non-deductible IRA
How they work: Contributions are made with after-tax money and earnings grow tax-deferred until they're withdrawn, at which point they're subject to income taxes.
Contribution limits: $4,000 per individual in 2007 with an additional $1,000 "catch up" contribution for those 50 or older.
Income eligibility requirements: None.
For married couples filing a joint tax return (and who are both covered by a company plan), the phase-out is between $83,000 and $103,000. The phase-out requirement for a non-working spouse who files a joint return with a working spouse covered by a company plan is $156,000 to $166,000.
Warnings: You'll owe a 10 percent penalty if you withdraw money before age 59½. You also must begin withdrawing money by age 70½.
Who they're for: Anyone, but those who make too much to use a Roth IRA or deductible IRA should consider them.