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The passage of the Economic Growth and Tax Relief Reconciliation Act of 2001 has changed the contribution limits of traditional individual retirement accounts. The changes in contribution limits will commence in January 2002. The changes in contribution limits are increased from $2000 to:

• 2002-2004 increased to $3000
• 2005-2007 increased to $4000
• 2008 increased to $5000

**These increases will be indexed for inflation beginning in the year 2009.**

Individual retirement account holders who are age 50 or older may now contribute the following amounts in addition to the basic annual contribution:

• 2002-2005 a contribution of $500
• 2006 and beyond $1000

Understanding traditional individual retirement accounts and keeping up with changes can be difficult. The maximum contribution is $3000 if you are single and $6000 for married couples filing jointly who do not participate in employer sponsored plans. If either an individual or spouse participates in an employer sponsored plan the deductible contribution is limited based upon the AGI (adjusted gross income) for the individual or couple. 

Distributions from the IRA are considered premature if taken prior to 59 1/2 and are taxed and also carry a 10% penalty tax. Distributions must be made from an IRA at age 70 1/2. IRA funds may be withdrawn tax-free and penalty free for 60 days if the amount is returned to the account within this time. This may be done only once in a twelve month period. You may roll over the money to a new IRA account if you choose as long as it is within 60 days. An early withdrawal may be made for higher education expenses  including tuition, fees, room and board, books and supplies. Income tax is due on the withdrawal but there is no 10% penalty tax. 

Early withdrawals are permitted for first time home purchases. The limit is $10,000. This may be used for yourself, to buy a home for your parents, children and also grandchildren. You may also use a portion of the exemption and use the remainder at another time. income taxes will be payable but there is no 10% penalty on withdrawals due to death, disability, if your medical expenses exceed 7.5% of your AGI or if you have received unemployment benefits for 3 months and are going to use the withdrawals) to pay for health insurance.