The Individual Retirement Account (IRA) was first introduced in 1981 to provide Americans with a tax-favored means of saving for retirement. It is a way for individuals to accumulate wealth on a tax-deferred basis until retirement. The IRA offers flexibility by allowing contributors to determine how much money they want to invest, how often, how they want to invest it, and how much risk they would like to take with their IRA money.
The Traditional IRA has had the following features: (check with www.irs.gov and your tax advisor for current and complete information)
- Maximum contribution of $4,000 a year
- You can own more than one IRA, but your total annual contributions
cannot exceed $4,000.
- Tax-deferred growth.
- You can choose from a wide range of IRA investments, including
mutual funds or stocks.
- You can deduct your contribution from your tax return
as long as:
- You earn less than $50,000 ($80,000 for joint filers).
- You dont already contribute to your company
- Withdrawals made before age 59½ will be subject
to a 10% federal tax penalty.
You can avoid the 10% penalty if early withdrawals are
- College expenses
- Buying a first home
- Medical expenses
- Medical insurance if youre unemployed
- You cannot make contributions past age 70½.
- You must begin taking mandatory withdrawals at age 70½.
- You cannot borrow from your IRA or use it as collateral
for a loan.
- You may, however, use the money during the 60-day rollover
period to another qualified account, but youll owe
income taxes (and possibly the early withdrawal penalty)
if you withdraw the money for longer than 60 days.