The Individual Retirement Account (IRA) was first introduced
in 1981 to provide Americans with a tax-favored means of saving
for retirement. You should know the following about an IRA:
Maximum contribution of $2,000 a year ($4,000 for couples
with a non-working spouse).
You can own more than one IRA, but your total annual contributions
cannot exceed $2,000.
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 $31,000 ($51,000 for joint filers).
You don’t already contribute to your company
401(k) plan.
Withdrawals made before age 59½ will be subject
to a 10% federal tax penalty.
You can avoid the 10% penalty if early withdrawals are
made for:
College expenses
Buying a first home
Medical expenses
Medical insurance if you’re 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 you’ll owe
income taxes (and possibly the early withdrawal penalty)
if you withdraw the money for longer than 60 days.
If you contribute more than the maximum to an IRA in
any year, a 6% penalty will apply to the excess that
is not removed before the tax filing date. On the other
end of the spectrum, if you fail to make the required
minimum distribution (RMD) after age 70½, a 50%
penalty will apply to the difference between the amount
you withdrew and the amount required.
Traditional
IRA
