Individual Retirement Account Defined
The Internal Revenue Service defines the Individual Retirement Account as - "An individual retirement arrangement, or IRA, is a personal savings plan which allows you to set aside money for retirement, while offering you tax advantages. You may be able to deduct some or all of your contributions to your IRA. Amounts in your IRA, including earnings, generally are not taxed until distributed to you. IRA's cannot be owned jointly. However, any amounts remaining in your IRA upon your death can be paid to your beneficiary or beneficiaries." There are certain requirements that you must meet in order to qualify for an Individual Retirement Account. The first one is to be under age of 70. You must have some type of taxable income, such as salary, rent, commissions, or income from self-employment. What you should remember is that although the money you deposit in your IRA is not immediately taxable, there is still tax to be paid on them in the future. Amounts you withdraw from your IRA are fully or partially taxable in the year you withdraw them. If you made only deductible contributions, withdrawals are fully taxable. Withdrawals made prior to age 59 1/2 may be subject to a 10% additional tax. You also may owe an excise tax if you do not begin to withdraw minimum distributions by April 1st of the year after you reach age 70 1/2. The only advantage that you get is that the money you save in your individual retirement account grows tax free, which helps you make a more money in the end, but that's only for as long as the money is there. Now, if you go with Roth IRA instead of Traditional IRA, your money is withdrawn without paying federal taxes. Roth IRA plans have no age restrictions. They are available to people with income below $95,000. Limits can be increased in case the income is higher than $110,000. You can convert your existing IRA account to Roth IRA and in that case the taxable portion of the IRA is taxed in year of conversion. The conversion is possible if your income is less than $100,000. With traditional IRAs, you are able to invest up to $4,000 a year and a working married couple may be able to put away as much as $8,000 a year for tax year 2007. Exactly how much you can contribute depends on your age, the amount of your earned income and whether or not you are eligible to participate in an employer retirement plan.
|