The amount you, and your spouse if filing jointly, may be able to deduct as an IRA contribution for the 2006 tax year will be $5,000 ($4,500 if age 50 or over at the end of 2006).
Tax on Premature IRA Distributions:
a. If a distributions is made to an employee under the plan before he/she reaches age 59 1/2, the employee may have to pay a 10% additional tax on the premature distribution. This tax applies to the amount received that the employee must include in income.
b. Exceptions. The 10% tax will not apply if distributions before age 59 1/2
- Annuity payments based on life expectancy
- Distributions made to an employee after he/she separates from service after attaining age 55
- Medical expenses exceeding 7.5% of AGI
- Qualified higher education expenses
- A qualified first-time homebuyer distribution
- Unemployed health insurance premium
- Levy under Sec. 6331
- Payments made under a Qualified Domestic Relations Order
c. If a tax payer borrows money against an IRA, the fair market value of the IRA as of the first day of the tax year must be included in gross income. The taxpayer may also be subject to the 10% penalty tax