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Can You Be Saving More?

Take some simple steps to make the most of your money


You must have earned income to contribute to a traditional IRA or to a Roth IRA; and even if you have earned income, you can't contribute to a traditional IRA after age 70 1/2.

Traditional tax-deductible IRAs:

• Contributions reduce your taxable income.

• You're taxed only on withdrawals.

• Your investment choices are almost unlimited. You can put virtually any bank, brokerage, mutual fund or insurance product into an IRA.

The downside:

• Your withdrawals are taxed as ordinary income and subject to a 10 percent early withdrawal penalty until you're 59 1/2.

• You must start taking minimum annual withdrawals after age 70 1/2.

What to consider: Are you eligible for a deductible IRA? The answer is yes if you and your spouse didn't participate in a workplace retirement plan during the year. Otherwise, your eligibility for a deduction depends on your income, tax filing status, and whether either of you is covered by a workplace retirement plan. [Check the IRS website for more details].

Traditional nondeductible IRAs:

• Your earnings are untaxed until you withdraw them.

• Your investment selection is almost unlimited.

The downside:

• Your contributions don't reduce your current taxable income.

• Your earnings are taxed as ordinary income when withdrawn and subject to a 10 percent early withdrawal penalty until age 59 1/2.

• Each withdrawal includes some taxable earnings along with tax-free return of contribution.

• You must start taking minimum annual withdrawals after you turn 70 1/2.

What to consider: A nondeductible IRA makes sense only if you're ineligible for a traditional deductible IRA (see eligibility rules above) and your earnings disqualify you for a Roth IRA.

Contribution limits: The maximum amount you can put into a traditional tax-deductible IRA, a traditional nondeductible IRA or a Roth IRA is the same: In 2014, it's $5,500, or $6,500 if you were at least age 50 at year's end. You can also divide this maximum contribution between a traditional IRA (deductible or nondeductible) and a Roth IRA if you wish.

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