Important Reminders

IRA interest. Although interest earned from your IRA is generally not taxed in the year earned, it is not tax-exempt interest. Do not report this interest on your tax return as tax-exempt interest.

Form 8606. If you make nondeductible contributions to a traditional IRA and you do not file Form 8606, Nondeductible IRAs and Coverdell ESAs, with your tax return, you may have to pay a $50 penalty.

Spousal IRAs. In the case of a married couple filing a joint return, up to $2,000 for 2001 ($3,000 for 2002 or $3,500 for 2002 if 50 or older) can be contributed to IRAs (other than SIMPLE IRAs) on behalf of each spouse, even if one spouse has little or no compensation. See Spousal IRA limit under How Much Can Be Contributed? and under Can I contribute to a Roth IRA for my spouse? under Roth IRAs, later.

Employer contributions under a SEP plan are not counted when figuring the limits just discussed. SEP plans are discussed in chapter 3 of Publication 590.

Spouse covered by employer plan. If you are not covered by an employer retirement plan and you file a joint return, you may be able to deduct all of your contributions to a traditional IRA, even if your spouse is covered by a plan. See How Much Can I Deduct? under Traditional IRAs.

Distributions for higher education expenses. You can take distributions from your traditional IRA or Roth IRA for qualified higher education expenses without having to pay the 10% additional tax on early distributions. For more information, see Publication 590.

Distributions for first home. You can take distributions of up to $10,000 from your traditional or Roth IRA to buy, build, or rebuild a first home without having to pay the 10% additional tax on early distributions. For more information, see Publication 590.

Roth IRA. You cannot claim a deduction for any contributions to a Roth IRA. But, if you satisfy the requirements, all earnings are tax free and neither your nondeductible contributions nor any earnings on them are taxable when you withdraw them. See Roth IRAs, later.

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