IRA MEMO

Posted: October 17th, 2013

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IRA MEMO

Question one

A. In 2011, the maximum one is required to contribute in the traditional IRA is stipulated as 5000 dollars. A further 1000 dollars is required for individuals above the age of fifty (Adelman, 7). In this case, John who is well over the age of fifty will be required to contribute both the initial $ 5000 and the additional $1000 due to his age. Diane on the other hand will only be required to contribute the initial $ 5000 dollars since she is not above fifty years. In support of this conclusion, IRS Publication 590 (2011) stipulates that the highest amount one can contribute in the traditional IRA retirement plan is $5000 and $6000 for individuals aged fifty and above. This most that a client to the client to the plan is required to contribute regardless whether the contribution is made towards one or more traditional IRA plans, or whether the contributions are not subject to deduction. Therefore, the couple will be required to contribute a total of $11,000.

B. Considering maximum contributions, the Roth IRA retirement plan in 2011 has similar stipulations to the traditional IRA of the same year (Adelman, 7). Supporting my answer is IRS Publication 590 (2011) which stipulates that the highest amount one can contribute in the Roth IRA retirement plan is $5000 and $6000 for individuals aged fifty and above. Therefore, Joan will be required to contribute $6000 and Diane will have to contribute the required $5000. Together, the couple will contribute a total of $11,000.

Question two

A. With regard to the IRA retirement plan, IRS Publication 590 (2011) stipulates that when individual is under an employer retirement plan, then they are entitled to partial or full deduction of their contribution to the Traditional IRA retirement plan. Therefore, John will in this case not contribute but his wife Diane will still be required to make the required $5000 contribution since she is not under an employer retirement plan.

B. Unlike the traditional IRA retirement plan, Roth IRA does not offer any deductions to the contributions liable by a client in case they are covered by an employer retirement plan (Adelman, 23). The IRS Publication 590 in 2011 gives a similar stand. In this case, John will not be privileged to any deduction and his contribution remains. Therefore, the couple will be required to contribute a total of $11,000.

Question three

A. The IRA retirement plan stipulates that when individual is under an employer retirement plan, then they are entitled to a full deduction of their contribution to the Traditional IRA retirement plan. This statement is supported by the 2011 IRS Publication 590 on contributions with regard to employer retirement covered employees. However, under this rule, since both John and Diane are both covered by an employer retirement plan, deduction on their contributions will only be partial rather than full. Therefore, both John and his wife Diane will be required to contribute to a reduced amount to the Traditional IRA retirement plan.

B. Roth IRA does not offer any deductions to the contributions liable by a client in case they are covered by an employer retirement plan. The IRA retirement plan, IRS Publication 590 (2011) stipulates that an individual to this retirement plan be not entitled to any deduction in their contribution in case they are covered by an employer retirement plan. Since both John and Diane are under employer retirement plans, no deductions are warranted (Thomas, 18). Therefore, the couple will be required to contribute a total of $11,000.

The 2011 IRS Publication 590 stipulates that $3000 will be deducted from the contribution of an individual earning less than $50,000 and $2000 for that earning above $50,000. i.e. if they are married and filing separately. In this case, John will be entitled to $3000 contribution and Diane will be entitled to the same amount. Therefore, their total contributions will amount to $6000.

Works Cited

Adelman, Saul W, and Mark L. Cross. “Comparing a Traditional Ira and a Roth Ira: Theory Versus Practice.” Risk Management & Insurance Review. 13.2 (2011): 265-277. Print.

Copeland, C. “Ira Balances and Contributions: an Overview of the Tradition IRA plan.” Ebri Issue Brief / Employee Benefit Research Institute. (2012): 1-17. Print.

Thomas, Kaye A. Fairmark Guide to the Roth Ira: Retirement Planning in Plain Language. Lisle, Ill: Fairmark Press, 2011. Print.