With people generally living longer, healthier and more active lives, retirement income has become a concern for everyone. That is one of the reasons the U.S. Government established Individual Retirement Accounts (IRAs) in 1974 and added Roth IRAs in 1998. Individuals now have two ways to set aside funds for retirement, whether or not they also have a company-sponsored retirement plan.
With an IRA, your investment earnings grow sheltered from taxes.
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Traditional IRA — Any earnings grow tax-deferred and contributions may also be tax-deductible.
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Roth IRA — Assets may be withdrawn tax-free at retirement; however, contributions are not tax-deductible.
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Beneficiary IRA — Allows a beneficiary to extend the IRA and continue the benefits of tax-deferred compounding.
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IRA Rollover — Helps you maintain the tax-deferred status you enjoyed from your company-sponsored retirement plan as you change jobs.
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Roth IRA Conversion — Allows you to convert a Traditional IRA, Simple IRA or a SEP IRA to a Roth IRA.
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Your IRA can be more than just an individual retirement account, it can also be a resource for some of life's biggest expenses. Whether you will be purchasing your first home someday or sending your child to college, you can tap into the assets in your IRA and make it work for you.
Funding Your Retirement
Everyone hopes for a comfortable retirement. You may even have ideas about how you will spend your leisure years. Only careful planning can turn your retirement dreams into reality.
Many financial planners say you will need 70% - 80% of your pre-retirement, pre-tax earnings each year to maintain your standard of living in retirement.1 If you plan to travel or enjoy other activities, that number may be even higher.
These days, it is rare for people to spend their lives at one job and retire with a company pension that provides full financial support throughout their retirement years. Chances are that Social Security may not be enough to support your lifestyle. You'll need additional income to make up the difference.
You may be surprised to see that more than half of the average retiree's income comes from personal sources such as investments and continued employment. A quality investment plan is crucial to enjoying life in retirement without the burden of having to work.
Compounding Tax-Sheltered Assets: An Annual Event
Opening an IRA and contributing to it every year is one of the best strategies available for individual retirement savings. With an IRA, your investment earnings accumulate sheltered from taxes.
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If you open a
Traditional IRA, taxes on the earnings are deferred until you withdraw them, generally in retirement.
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With a
Roth IRA, any earnings are tax-free when withdrawn after the account has been held for five years and you reach age 59½ (or for other qualified purposes).
The charts at the right and below illustrate the advantage of tax-sheltered growth potential. |
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 One of the most important elements in a saving and investment program is time. Given enough time to grow, even small investments have the potential to yield big rewards. Waiting even a year can cost you valuable opportunities.
1 Source: Kiplinger.com
* Includes private pensions and annuities, government employee pensions, Railroad Retirement, IRA, Keogh, and 401(k) payments.
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