Tax Tip of the Week
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It's not too late to change your mind about your IRA
For the week of
January 15, 2001
When you make an IRA contribution, you must specify whether
you are contributing to a traditional IRA or a Roth IRA. Sometimes events occur after the contribution's been made
that make you wish you'd made the opposite choice.
A contribution to a traditional IRA is tax-deductible. (If you are covered by a retirement plan at work, your contribution
may or may not be deductible.) Your contribution and earnings aren't taxed until you withdraw them. Then they are
taxed at your regular income tax rate.
Contributions to a Roth IRA are made in after-tax dollars. There is no immediate tax benefit because contributions
aren't deductible. But your contributions and the earnings that accumulate on them are never again subject to tax
if you follow the rules.
Perhaps you made a Roth contribution, but now want to reduce your 2000 tax bill instead. Or perhaps you made a
traditional IRA contribution, but unexpected income now prevents you from taking a deduction on your 2000 return.
If you've changed your mind about what type of contribution is best for 2000, it's not too late to correct your
mistake. The IRS calls this correction a "recharacterization." Fortunately, you can recharacterize your
2000 contribution until the due date of your 2000 tax return (including extensions).
And if you haven't yet contributed to your IRA for last year, you still have time to make that decision too. You
have until April 16, 2001, to contribute to your 2000 IRA.
The IRA rules are very complex. Your IRA decisions
today have a long-term impact on your financial future. Call us for help in determining the strategies best suited
to your situation.
Click here to view previous tax tips.
"Tax Tips" are published weekly to
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and current tax information.
The information contained in this site is of a general nature and should not be acted upon in your specific situation
without further details and/or professional assistance.
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