Home > Retirement Planning > IRA Basics
Individual Retirement Accounts (IRA) are a great way to save for your retirement.
What is a traditional IRA?
Anybody younger than 70 with earned income may contribute to a traditional IRA, which may be tax deductible depending on your modified adjusted gross income and whether you or your spouse participate in a qualified retirement plan through your employer. The earnings in your IRA are always tax-deferred - meaning you won't pay taxes on the earnings until you receive a disbursement. You must start taking distribution of a traditional IRA at age 70.
What's a Roth IRA?
Unlike in a traditional IRA, your contribution to a Roth IRA is not tax deductible - it's taxed in the year of contribution. However, the earnings you accumulate are not taxed when used for retirement income.
To qualify for a Roth IRA, your income should not exceed adjusted gross income limits.
The distributions of accumulated earnings from a Roth IRA could be subject to income taxes and penalties when you are younger than 59-1/2 or if you have not had a Roth IRA for more than five years.
A Roth IRA doesn't need you to take distributions when you reach 70.
What's the maximum IRA contribution for this year?
In 2004, you can contribute up to $3,000 annually if you are younger than 50. If you're over 50, you can contribute up to $3,500 per year.
Where can I invest my IRA?
You can put your IRA in many approved investments, including mutual funds, stocks, bonds and even real estate.
Are there any exceptions to the 10 percent penalty if I withdraw funds from my IRA before age 59 1/2?
Yes, there are several exceptions. You won't have to pay the 10 percent penalty if, you have extremely high medical expenses, you're disabled, you need the money to pay for health insurance, you're a first-time home buyer, you use the money to pay for college education, or you receive regular withdrawals through the substantially equal period payments (SEPP).
Can I contribute to an IRA if I don't work?
No, you should have earned income to contribute to an IRA. Earned income is defined as wages, commissions, bonuses, tips, self-employment income and fees for professional services.
What's a spousal IRA?
If you are married and either you or your spouse doesn’t work, the working partner can contribute up to $3,000 per year in a spousal IRA.
Social Security Benefits Estimator
Supercharge your investment portfolio. get your FREE Weekly Wealth Letter, no tricks or strings attached... Find the best funds, stocks and ETF's in any market environment. Join now!
|Free Stock Newsletter|
Find Market Leading Stocks Now! Clear, Concise and Free Click here now!
|Get Great Stock Picks|
Try Proven Stock Picking Methods! Plus Free Book, Free Reports, etc Click here now!
|Stock Report Newsletter|
46.55% return in 2004. Try it for just $1 plus get a bonus book. Click here now!
|Fund Timing Newsletter|
Make profits in both bull and bear markets. 30-day trial subscription Click here now!
|Top Mutual Fund Ranking|
Try the Sector Fund Timer for just $1 plus Bonus Book & Free Reports Click here now!