Con Edison: Retirees - benefits management

benefits management

Considering an IRA?
It’s a simple and convenient way to save for retirement.

If you want to boost your retirement investments, try contributing to an individual retirement account (IRA). IRAs offer a tax-advantaged way to save for retirement so that your investments can grow faster. What’s more, you have until April 15, 2003, to contribute to an IRA for 2002.

There are two different types of IRA: traditional IRAs and Roth IRAs.

Which One Is Right for You?

Traditional IRAs
The main advantage of a traditional IRA is that your contributions can be tax-deductible. However, if you are eligible to participate in an employer-sponsored retirement plan, such as the Con Edison Savings Plan, your ability to deduct contributions depends on your income. If your modified adjusted gross income (AGI) is less than $40,000 (or less than $60,000 if you are married and filing jointly), you can fully deduct a traditional IRA contribution. You can deduct part of your contributions if your AGI is between $40,000 and $50,000 (or $60,000 and $70,000 for spouses filing jointly). If your income is above these limits, you cannot deduct your contributions, but you could still make nondeductible contributions to take advantage of the tax-deferral benefit of IRAs.

If you have a spouse who is not participating in an employer-sponsored plan, your spouse can make a fully deductible contribution of up to $3,000, as long as your combined AGI does not exceed $150,000. The contribution is partially deductible if your combined AGI falls between $150,001 and $160,000.

Even if you can’t deduct your contribution, traditional IRAs provide a definite advantage – your earnings grow tax-deferred, which means that your investments could grow faster. You will be taxed on these earnings at your regular income tax level once you withdraw the money (usually in retirement, when marginal tax rates are lower for many people).

Quick Facts About Traditional IRAs

Contributions and Earnings

Contributions can be tax-deductible.
Earnings (interest from contributions) are treated as taxable income when they are withdrawn.
The maximum contribution for employed people under age 50 is $3,000 per person in 2003. Employed people age 50 and over may contribute up to $3,500 in 2003.
A nonworking spouse under age 50 can contribute $3,000 per year. A nonworking spouse age 50 and over can contribute up to $3,500 per year.

Withdrawals

Withdrawals can be taken once you reach age 59 1/2. Minimum distributions are generally required once you reach age 70 1/2.
A federal penalty of 10% usually applies to all withdrawals taken before age 59 1/2. This is in addition to regular income taxes.
Unlimited, penalty-free withdrawals can be made before age 59 1/2 for college expenses. Penalty-free withdrawals of up to $10,000 are allowed for the first-time purchase of a home.

Roth IRAs
You can contribute to a Roth IRA even if you participate in the Con Edison Savings Plan. Contributions are always nondeductible, but earnings grow tax-free. You’re eligible for a Roth IRA if your modified AGI is $95,000 or less ($150,000 or less for spouses filing jointly) for the year in which you contribute.

Quick Facts About Roth IRAs

Contributions

Contributions are nondeductible.
The maximum contribution for individuals under age 50 is $3,000 in 2003. If you earn $95,001 to $110,000 ($150,001 to $160,000 for spouses filing jointly), your ability to contribute to a Roth IRA gradually phases out.
Those age 50 and over can contribute up to $3,500 in 2003. If your modified AGI is more than $95,000 (more than $150,000 for spouses filing jointly), your ability to contribute gradually phases out.

Withdrawals

Tax-free withdrawals can be made on contributions.
Earnings are tax free if the money remains in your account for at least five years and is withdrawn after age 59 1/2, or if the earnings are used for college expenses or for the first-time purchase of a home ($10,000 limit).

Opening an Account
If you are a registered user of Vanguard.com®, you can establish a traditional or Roth IRA online. The minimum contribution to open your account is $1,000.

Questions?
If you want additional information or have questions, visit www.vanguard.com and click on the “Services” tab. Or call Vanguard® Participant Services at 1-800-523-1188 Monday through Friday from 8:30 a.m. to 9 p.m., Eastern time.

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