Friday, February 17, 2012

Slow and Steady - Getting Started IRA 101

We discussed company sponsored retirement plans in my last blog.  If you are self employed or work for a company that doesn’t provide a retirement plan, don’t worry, you can set up an Individual Retirement Account (IRA) and receive some of the same tax savings.

If you are under the age of 50, and your employer doesn’t offer a plan, you can save up to $5,000 per year and deduct that payment from your income taxes.  What does that mean to you? If you are in the 25% tax bracket that could result in a tax savings of $1,250.  Your tax bill will be reduced by that amount.  If you are over 50 you can deduct up to $6,000 annually.  The deductibility of the contribution changes if your employer offers a plan. If your employer offers a plan,  please go back and read my last blog. Then go to your HR department and sign up as soon as you are eligible.

Another type of  IRA is called the Roth IRA.  Roth IRAs have been around since 1998. The contribution limits are the same, but a Roth does not allow a tax deduction.  Any growth on a regular or a Roth IRA is tax deferred.  Translation – no income taxes are due until you take money out.

The main difference between a Roth and a Regular IRA is at the time you are ready to take the money out after age 59 ½. The Roth proceeds are tax free (no taxes due) whereas the regular IRA distributions will be taxed in retirement. Roth’s can be both simple and extremely tax effective when compared with the many retirement accounts available.

Here are two great websites for details:

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Securities and Investment Advisory Services offered through NFP Securities, Inc., Member FINRA/SIPC. NFP Securities, Inc. is not affiliated with Fish & Associates.