Kathy, who is single and 25, inherited $7,000 from her grandmother. A coworker has suggested that Kathy open an individual retirement account with the $7,000. Her friend says that an IRA is a great way to save because you don't have to pay tax on the income from the investment and you get a tax deduction for your contribution.

Complete the letter below outlining for Kathy various individual retirement accounts available.

Dear Kathy,

I would like to outline both the accurate and inaccurate information you received from your friend and, in instances where the advice was inaccurate, provide you with the correct tax treatment. I hope to explain how different facts may lead to different tax treatments.

First, your co-worker's statement that an IRA is an excellent vehicle to save is correct and the income does accumulate tax-free.

The information concerning the amount you can contribute and any associated tax deduction requires clarification. First, you are only allowed to contribute up to $ per year. Assuming that you are not covered by an employer-provided retirement plan, you can deduct the entire contribution amount not to exceed $.

If you are covered by an employer-provided retirement plan, your deduction is phased out over a $ range beginning when your adjusted gross income exceeds $. Basically, in 2018, when adjusted gross income exceeds $ the tax been lost .

If you are covered by a qualified employer-sponsored pension plan and your adjusted gross income exceeds
$, you could make a $ nondeductible contribution to a Roth IRA. A contribution to a Roth IRA can be made if your adjusted gross income does not exceed $. If your adjusted gross income exceeds this amount, your contribution is phased out ratably until no contribution is allowed when adjusted gross income equals
$.