Exploring Individual Retirement Accounts

1. Who can contribute?

IRAs are a great way to save towards retirement.  Taxpayers younger than 70 1/2 on December 31st are eligible to contribute to an IRA.

2. How much can I contribute?

If you do not have a retirement plan with your employer, you can put $5,000 a year in an IRA ($6,000 if you are 50 or older) into a traditional IRA as long as you make at least that amount of taxable income during the year.  Contributions can be made for a taxable year any time from January 1st of that year to April 15th of the following year when taxes are due.

3. What’s the benefit to having an IRA?

IRAs are a great way to save towards retirement.  Traditional IRAs allow people to save money with pretax dollars. Roth IRAs allow people to put money into an account with after tax dollars and the money grows tax free.  That means that you won’t have to pay taxes on the interest that accrues on your investment.  Another great benefit of an IRA is because it is a way to save for retirement the money in your IRA will be protected from bankruptcy.

4. When can I get my money out of the IRA?

Money put into an IRA generally can’t be taken out before you reach 59 1/2 years old without a penalty.  However, there are a few instances where the IRS will kindly give you a pass to use the funds before reaching before reaching 59 1/2 without a penalty, these include:

* distributions for the cost of medical insurance while unemployed,

* distributions to buy a home for first time home buyers (this is limited to a distribution of $10,000),

*distributions to pay for a qualified higher education for your education, your children’s education, or your grandchildren’s education.

5. How do I get an IRA?

Talk to someone at your local bank or check out opening an account online through a trading company like Scottrade or Sharebuilder.  The process is very simple and only takes a few minutes.  Once you set up your IRA you can use the money deposited in the account to invest in stocks, bond, mutual funds or just leave it in your money market account to accrue interest.