The Scoop on IRAs

Can you afford not to start an IRA?

When you retire, how much income will you need to cover the life style you want to live and where will that income come from. For the tax year 2002, the maximum benefit paid to an individual by social security is $1,660 per month (pre-tax) for workers retiring at age 65 (Full Retirement Age). If you do qualify for the maximum, could you live on this amount alone today? Another concern you should have is whether or not social security will be there at all. Mr. Greenspan in one of his recent public addresses cautioned the government about the future of social security stating if something is not done to fix it, it could be under funded by 2041. Hope for the best but plan for the worst.

What Jo Anne Barnhart, Commissioner of Social Security is saying:

"Social Security was and is meant to be only part of a three-legged financial stool, along with pensions and personal savings. Unfortunately, only half of today's retirees have a private pension. And too few Americans save as much as they should."

IRA: Individual Retirement Account

An IRA is an account that allows qualified investors to make limited monetary annual contributions. Monetary contributions may be tax-deductible or non-deductible, create a tax credit, and grow tax-deferred or tax-free. Monetary contributions in a self-directed IRA may be invested into a wide variety of products (i.e. money markets, bonds, mutual funds, unit investment trust or stock, etc.).

Here are the basic benefits of IRA investing for 2007:

Traditional IRA

1. Maximum contribution = $4,000 per individual ($8,000 per couple).
2. If you are over the age of 50 before 2007 = You can contribute an additional $1,000.
3. Lets your investments grow tax-deferred (not tax-free).
4. Can reduce your taxes:
1. Contributions may be fully deductible from your current-year income taxes.
2. Contribution may generate a dollar for dollar tax credit against your tax bill.

Roth IRA

1. Maximum contribution = $4,000 per individual ($8,000 per couple).
2. Contribution may generate a dollar for dollar tax credit against your tax bill.
3. Lets your investments grow tax-free (not tax-deferred).
4. If you are over the age of 50 before 2007 = You can contribute an additional $1,000.
5. Contributions can continue after age 70 1/2, and minimum distributions aren't required.
6. Withdrawals of principle invested (not gains) are free from income taxes and 10% penalty.
7. Funds passed to beneficiaries are free from income taxes (other taxes may apply).

Education IRA

1. Maximum contribution = $2,000 per child per year starting in tax year 2002.
2. earnings accumulate tax-free and are not taxed at the federal level at withdrawal if the money is used to pay for higher education expenses.*
3. Remaining funds from one child's education IRA may be rolled to another child's IRA.

* Provided that a Hope credit or a Lifetime Learning credit is not claimed on behalf of the beneficiary during the same tax year.

Many people don't realize an investment of $250 per month ($3,000 per year) in an IRA for 30 years at an average annual rate of return of 10%, would grow to a value of approximately $545,830 and $897,380 in 35 years. This assumes all capital gains and dividends are reinvested with no distributions taken.

Most people start an Individual Retirement Account, IRA, to help them save for retirement as a supplement to social security. Would you want to face retirement with no savings or social security? The answer? Start investing today!