A:

With an adjusted gross income (AGI) of more than $100,000, only your eligibility to deduct contributions to a Traditional IRA will be affected.

Even if you are unable to deduct your Traditional IRA contribution, you may still contribute up to the limit for the year ($4,000 for 2005, plus an additional $500 if you reach age 50 by Dec 31, 2005) to your Traditional IRA and treat the contribution as a nondeductible contribution. If you choose to make a nondeductible contribution to your Traditional IRA, you should file IRS Form 8606 (available at the IRS website) to report the contribution as nondeductible to the IRS and to keep track of the nondeductible balance (basis) in your Traditional IRA.

You would also need to file Form 8606 for each subsequent year you distribute assets from your Traditional IRA, to determine the taxable portion of the distribution.

If you are not eligible to deduct the contribution to a Traditional IRA, and you are eligible to contribute to a Roth IRA, then the Roth may be the better choice. This is because the earnings on Roth IRA assets accrue tax-deferred and are tax free if distributions are qualified, whereas the earnings in a Traditional IRA accrue tax-deferred but are taxed when distributed. You are eligible to contribute less than 100% of your compensation or up to the limit for the year ($4,000 for 2005, plus an additional $500 if you reach age 50 by Dec 31, 2005) to a Roth IRA if your income is as follows:

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