Legislation has changed the contribution limits of Individual Retirement Accounts (IRAs) making them even more attractive when planning your retirement or your investment future. Key changes are indicated below.
Your Social Security benefits and pension are not intended to provide all of your retirement income. And planning ahead to pay for an education, or to buy a house, or any future goal is always wise.
Today’s IRAs provide more tax benefits and greater earnings than in previous years. You can choose from taking advantage of yearly tax deductions now, or save your tax breaks for future withdrawals.
Traditional IRA
Choose A Traditional IRA for long term retirement planning.
You don’t pay taxes now on these retirement accounts, when your income is high.
At retirement, you are able to take out your funds or roll them over into another option. Taxes paid then are considerably less, since your income will be less.
Here are some facts about Traditional IRAs:
- You must be under age 70 1/2 to be eligible for a traditional Nondeductible IRA.
- Non-working spouses can now make fully deductible contributions to an IRA, even if their spouse participates in a retirement program, as long as their joint income does not exceed $150,000.
- You may be able to withdraw money before age 59 1/2 without a penalty to purchase a first home (up to $10,000 maximum) or pay qualified costs of higher education.
- Each wage earner’s annual contribution to an IRA can be $2,000 or 100 percent of earned income, whichever is less. In a family with a nonworking spouse, the couple may be eligible to deposit up to $4,000. The limit will depend upon earned income and tax filing status. Check with your tax preparer for more information.
- Interest earned on an IRA is tax-deferred until you withdraw the funds, which become available when you reach age 59 1/2 you must begin to withdraw at age 70 1/2 or face an Internal Revenue excise tax penalty.
- Early withdrawal may incur a substantial interest penalty.
Roth IRA
If you know you will need your money sooner than retirement, consider the Roth IRA.
Savings for a down payment on a house or other expenditure will add up to more with the higher interest paid on a Roth IRA. While you will have to pay taxes on the funds now, you will be saved those taxes when you use the money, and you do not incur any penalties for withdrawal after 5 years.
Here are some key elements of the Nondeductible Roth IRA:
- Penalty free withdrawals after 5 years
- Tax free earnings after age 59 1/2
- Contributions allowed after age 70 1/2; when employed
- No required distribution at age 70 1/2 or in your lifetime
- Tax-free if used for first home purchase (up to $10,000) or education
- Tax-free if disabled or upon death
Talk to your accountant or tax preparer about your Roth IRA options, then come and see us. We are your Roth IRA source.
Coverdell Education Account*
This is a great opportunity
to save toward the costs of a higher education. Best of all, it’s available to everyone: parents, grandparents, other relatives, friends, and even minors (with earned income) can set up an account for any designated beneficiary under age 18. You can make nondeductible contributions of up to $500 per child each tax year. The accumulation of interest and withdrawals are tax-free as long as the funds are used for qualified, higher education costs.
If the beneficiary is not going to use the money for education expenses, it must be withdrawn by age 30. The Coverdell Education Account can be rolled over into another child’s account in the same family. The contributions to this account do not count toward your $2,000 single taxpayer or $4,000 married taxpayer (filing jointly) IRA contributions. You can save for a child’s education and maximize your own IRA every tax year.
*Formerly the Educational IRA.
IRA Share Certificate
Share Certificates are also available as IRA investments.
An IRA Share Certificate offers a higher yield over fixed terms ranging from 3 months to 5 years. You can open one with a minimum investment of $500.00.
When planning your retirement or investment future, be sure to consider these higher yield certificates. They can be rolled over at the end of their term into other IRA options, so start planning now.
Remember that early withdrawals do incur penalties.
For more information about IRAs, speak to your financial advisor.
Contact us to open your IRA today and start saving for tomorrow.
