|
Your Individual Retirement Account can be part of the foundation of a financially secure retirement. Many experts suggest that your living expenses after retirement to average 60 ½ to 75 ½ of your pre-retirement expenses. Social Security will provide some benefits, but your retirement income will primarily depend on your other assets including your company retirement plan and your IRA.
Almost every individual with earned income can contribute to either a regular IRA or Roth IRA. Here is a simple chart to help you decide which one is right for you.
Feature
|
Regular IRA
|
Roth IRA
|
|
Age restrictions
|
Under 70 ½
|
No age restrictions
|
|
Income eligibility restrictions
|
Must have earned income equal to or greater than contribution. No restriction on maximum income.
|
Must have earned income equal to or greater than contribution. For 2008, full contributions can be made if Modified Adjusted Gross Income is less than $159,000 or joint filers or $101,000 for individual filers. No contributions are allowed if MAGI is above $169,000 or $116,000 respectively.
|
|
Taxation
of earnings in IRA
|
Tax
deferred
|
Tax
deferred
|
|
Distribution
requirements
|
Must
start at age 70 ½. However, for 2009 only, there are no required
minimum distributions.
|
No
distribution requirements
|
|
Taxation
of distributions
|
Taxed
as ordinary income
|
Not
taxed
|
|
Contribution
limits
|
$5000
for 2009 and indexed for inflation thereafter
|
$5000 for 2009 and indexed for inflation thereafter
|
|
Catch-up
contribution for those age 50 and above
|
$1000
for 2009 and thereafter
|
$1000
for 2009 and thereafter
|
|
Deductibility
of contributions
|
Deductible
if not covered by employer plan or if income is below certain levels.
|
Not
deductible
|
|
Penalty for withdrawal before age 59 ½
|
Generally, 10% penalty
|
Generally, 10% penalty
|
The savings, tax deferral and earnings opportunities of an IRA make good financial sense.You have until April 15th of the following year to fund your IRA.2009 contributions must be made by April 15, 2010 and 2010 contributions can be made up to April 15, 2011.The sooner you make your contributions, the more your money will grow.
|
|
