The Basics of IRA Investing

Many people are not sure how much they need to save for retirement or which investment approach will help prepare them for life after work. IRA investing may help accumulate the money you’ll need in retirement.

An Individual Retirement Account (or IRA) is a tax-deferred account that allows an individual to contribute money annually, with tax-deferred earnings. The individual may begin to withdraw from the account at age 59 1/2 or later. Earlier withdrawals are penalized.

IRAs can be established with a bank, mutual fund, or brokerage firm. Those who participate in a pension plan at work may not be eligible to make tax-deductible contributions unless they meet certain income guidelines.

There are a various types of IRAs, falling into the categories of employer-provided or self-provided plans. Below, we have provided just a simple overview of some of the primary IRA options.

Please consult a financial expert for details and personal guidance on IRA investing.

Traditional IRA –The income generated in this account is tax-deferred until it is withdrawn. The original contribution may tax-deductible, depending on the circumstances of the contribution. The maximum contribution for 2008 is $5,000 per year for those 49 and under and $6,000 per year for those 50 and over.

Roth IRA - Named for Senator William Roth, it enables contributions to be made with after-tax assets. Transactions within the Roth IRA do not have a tax-impact. Its withdrawals are normally tax-free. The Roth IRA has the same maximum contributions as the Traditional IRA. Here’s a good article on Roth IRA investing.

Spousal IRA- Either a traditional or Roth IRA funded by a married taxpayer in the name of his or her spouse who must be earning less than $2,000 per year. To make a spousal IRA contribution, you must be married and file a joint income-tax return. You must have income of at least the amount you contribute to your IRAs.

SEP (Simplified Employee Pension) IRA – Designed for the self-employed people or owners to allow them to defer taxes on retirement investments. In 2008 a SEP IRA has a contribution limit of $46,000.

Simple IRA- Another employer-sponsored plan, the Simple IRA currently permits employees to contribute up to 100 %, into an IRA but not to exceed $6,500 per year.

Education IRA- Can be set up for a child’s education. The contributions to this account are taxed but the earnings are not taxed if withdrawals are directed toward qualified education expenses. Under this IRA, the student is the beneficiary and can withdraw from the account at any time.

A good “How-to” on IRA investing

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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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