What is an IRA?
Since 1972 public sector employees have trusted the ICMA-RC, manager of the Vantagepoint Funds, with their retirement future. With the Vantagepoint IRA, you can take advantage of another tool for your overall retirement savings portfolio.
An Individual Retirement Account, or IRA, is a special tax-advantaged account that allows you to build savings for your retirement. One of the primary benefits of an IRA is that your investment’s earnings compound tax-deferred. Other potential tax benefits are tax-deductible contributions or, in the case of the Vantagepoint Roth IRAs, tax-free withdrawals.
The following educational information is provided to assist you in evaluating whether contributing either to a Vantagepoint Roth IRA or a Vantagepoint Traditional IRA meets your retirement planning goals:
- Roth IRAs — The most significant advantage of Roth IRAs is that while investors contribute to them on an after-tax basis, they have the opportunity to withdraw their earnings on a tax-free basis, assuming certain conditions are met. The ability to make a full 2009 contribution of $5,000 ($10,000 for joint filers) to a Roth IRA is limited to employees with a modified adjusted gross income (“MAGI”) of below $101,000 (single tax filing status) or $159,000 (joint filing status).
- Traditional IRAs — Investors realize the greatest tax advantage from Traditional IRAs when they can make contributions on a deductible (“pre-tax”) basis. However, many public sector employees are not eligible to make fully deductible (pre-tax) contributions to a Traditional IRA. If you are an active participant in an employer-sponsored retirement plan (such as a pension plan), you must have modified adjusted gross income (MAGI) below established limits (for 2009: $55,000 for single filers/$89,000 for joint filers) in order to make fully deductible contributions to a Traditional IRA. If you and/or your spouse do not actively participate in an employer-sponsored retirement plan, you may make fully deductible contributions to a Traditional IRA regardless of your MAGI.
If you are not eligible to make deductible contributions to a Traditional IRA, one of your best alternatives from a tax perspective is likely to be a Roth IRA. On the other hand, if you are not eligible to contribute to a Roth IRA based on your income (see above) your only alternative is to make nondeductible contributions to a Traditional IRA. (All taxpayers under age 70½ with earned income are eligible to make nondeductible contributions to a Traditional IRA.)
For more information on choosing IRAs, see our straightforward Deciding Which Vantagepoint IRA Is Right for You table, or use our free online IRA calculators.