Are You Missing Out On Something?

Individual retirement accounts hold approximately $5 trillion of retirement money.   Any investment that attracts that much money must offer some secret benefit.   Many investors use IRA’s to supplement their retirement investments; if you are not doing it, you may be missing out on something.

Enter The Fascinating World of IRA’s

  • Traditional IRA’s

Your contributions are made with pre-tax dollars.

  • Roth IRA’s

Your contributions are made with after-tax dollars.

  • Taxation

Traditional: Your contributions and the earnings with a traditional IRA are taxed as ordinary income at retirement when you withdraw the money.

All of your money will be growing in your IRA from day one until withdrawal.  You should be in a lower tax bracket when you reach retirement age therefore will pay less in taxes and keep more of your money for yourself.

Roth: If the money has been in the account for at least 5 years, your contributions at the time of withdrawal are tax-free, your earnings are taxable though.   If you set your Roth IRA up properly, your heirs can continue to benefit from this tax-free status even after your death.

  • Contributions

Contributions made to other retirement plans have to be made by year-end.  With IRA’s you have until the date you file  your taxes to make your contributions.

The contribution limit for either type of IRA for 2011 is $5,000.   If you are over the age of 50, the limit is increased to $6,000.

  • Rollovers

For either traditional or Roth IRA’s there is no limit to the amount of money that you can rollover from another IRA or a 401k retirement account.

  • Your Costs

Supplement your retirement with IRA's

photo by:lexisnoosa

You may pay more in fees in an IRA than you would in a 401k retirement plan.  In a 401k you have the advantage of getting a group rate on fees, so the fees you personally pay are minimal; you lose that advantage with an IRA.

Most financial institutions charge an annual maintenance fee.   If your investments are in a mutual fund you would also pay for any fees charged by the mutual fund company.

  • Retirement Plan Distributions

With a traditional IRA, you are required to take a distribution after age 70 1/2.   If you do not take that distribution, you face a stiff 50% excise tax on the amount of the required distribution.

With a Roth IRA there is not a required distribution age.

  • Funding It

You can fund your IRA’s with stocks, bonds, annuities or cash equivalents such as money market accounts.

  • Where To Get One

Most banks, insurance agents and financial planners sell IRA’s.

  • Which One To Choose

Traditional and Roth IRA’S both have different advantages for investors.   You need to choose the type of IRA that works best with your financial goals.  Ask your tax adviser; they work with you on your taxes every year so they know your finances.