What is IRA?
An IRA lets you build your retirement savings while you enjoy certain tax advantages. Think of an IRA as a box that holds investments such as mutual funds, stocks, bonds, annuities, certificates of deposit (CDs) or other financial products. To help you take advantage of this powerful financial tool, We offers a variety of IRA products. We can help you determine how to best use IRAs to help meet your retirement savings needs.
A traditional IRA can be invested in mutual funds, stocks, bonds, CDs, annuities and more. Your contributions may be tax deductible, and you only pay ordinary income taxes when you withdraw the money. Until then, all of your earnings and contributions stay in the IRA to increase the account value. The power of tax deferral can become significant especially over long periods of time, such as 20 or 30 years.
Who Can Participate?
You can establish a traditional IRA if you're under age 70 and are earning an income. If you're married and do not work but your spouse does, you may also make a traditional Spousal IRA contribution. Some experts strongly suggest you do this so that if you find yourself on your own, you'll have retirement funds in your own name.
How Much Can You Contribute Annually?
The amount you can contribute to an IRA is considerably smaller than what you can put into a 401(k). However, the annual contribution limits for IRAs are increasing.
Rolling Over Your 401(k) into a Traditional IRA
When you retire or change jobs, you can roll over a lump sum distribution from your 401(k) funds into a traditional IRA.
What About Deductions?
If you qualify to deduct your traditional IRA contribution from your current year income, then you get an even bigger tax break than just tax deferral. Whether you qualify or not depends on your income and whether you and/or your spouse are active participants in a retirement savings plan at work.
When Can You Contribute?
You can make your traditional IRA contribution for a tax year anytime before the tax-filing due date for that tax year (a filing extension does not extend the contribution deadline). Example: An IRA contribution for the 2005 tax year must be received on or before April 15th, 2006.
When Can You Withdraw Your Money?
If you take the money out of your IRA before you're 59 years old, you'll not only have to pay ordinary income taxes but may also have to pay a 10% federal tax penalty. There are exceptions to this rule, one of such as buying your first home (limited to $10,000). But you should think twice before dipping into your IRA savings for anything other than retirement.
You must begin taking annual minimum distributions from your traditional IRA at age 70. The amount you're required to take out at a time is based on the account balance of your IRA and your age. The rules are complex. When you reach this stage, consult a tax advisor.