Individual Retirement Accounts (IRAs) have been helping individuals save for retirement for more than 30 years? They extend the tax advantages of employer-provided retirement plans to those who either don’t have a retirement plan at work or who want to supplement their other plans. IRAs have changed in many ways, including restrictions on who can contribute, as well as the types of accounts you can contribute to. You may not be familiar with all the options and benefits available to you. To bring you up to speed, I’ll highlight three primary types of IRAs: Nondeductible, Deductible and Roth.
The one thing that remains consistent is the contribution limits. In 2007, it is $4,000 ($1,000 more if you are age 50 or older); in 2008, the limit increases to $5,000.
Nondeductible IRAs are perhaps the simplest to understand. You contribute after-tax income to the IRA and your assets grow on a tax-deferred basis. When the money is withdrawn, you don’t have to pay taxes on your original contribution and earnings are taxed as ordinary income.
Deductible IRAs have more variables to consider. Individuals meeting IRS deductibility requirements can deduct IRA contributions from their income for tax purposes. In addition, earnings accumulate on a tax-deferred basis. Any distributions will be taxed as ordinary income.
Roth IRAs, introduced in 1998, allow for after-tax contributions, as well as potentially tax-free distributions. The IRS has set specific eligibility requirements, but those who are eligible benefit from tax-free access to their contributions at any time. Roth IRAs are generally considered the most tax-advantageous, and can play a significant role in your retirement savings strategy. Minimum distributions are not required.
As the tax deadline approaches, it may be helpful for you to use IRAs to your maximum advantage. First, you should evaluate whether you are eligible for a Roth IRA or not. If you are, I hope you seriously consider making a contribution. If, however, your income level makes you ineligible for a Roth IRA, a traditional IRA may be best for you. I’d be happy to help you evaluate which IRA makes the most sense. Call now, for your Complimentary IRA Review.
Timothy J. Shaner, president of Capital Consultants, is an investment specialist offering estate and retirement planning nationwide. Our office is located at 23734 Valencia Blvd. #102H, Valencia, CA 91355 and we can be reached at 661-259-1644 or 818-557-7289. You may also visit www.capitalconsultants.org or tjshaner@aol.com .