What is an IRA?

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Posted on 24th September 2009 by Rita in IRA |Retirement and Estate Planning

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IRA – Individual Retirement Account

IRA’s provide a tax deferred or tax-free way of saving for retirement.

Traditional IRA: Your money grows tax-deferred until you withdrawal it from your account. Growing tax-deferred gives you a tax deduction which in turn reduces your taxable income. Basically you are not paying tax on the income you set aside in a Traditional IRA. This means you will not have to include interest, dividends, or capital gains from your IRA in your annual income.

Now when you decide to make a withdrawal, funds will be subject to regular income tax, as this is now considered ordinary income. Additionally if you withdrawal before age 59 ½ a 10% penalty will be included to the income tax taken at the time of withdrawal for early distribution.

Another age requirement is a minimum distribution must be taken after age 70 ½.

Roth IRA: Give more flexibility but are not tax-deductible. Contributions can be withdrawn at anytime without penalty or tax, along with eliminating the need to take a minimum distributions after age 70 ½ as the Traditional IRA does. Disadvantage is you do not get the income tax deduction when you contribute to the Roth IRA. There is adjusted gross income limit of $100,000 so this is not for the high level corporate executives. Although coming in 2010 this income limit with be lifted. More good news, is those taking advantage of this 2010 conversion period will be able to spread out the time in which you report your income. Therefore you can report half the income from the conversion in 2011 and the other half in 2012, spreading out your tax obligation.

Choosing IRA’s can be complicated it is always best to seek qualified guidance when making this important decision.


Note: This blog is designed for general information purposes only. All information presented on this site should not be interpreted as legal advice and the author assumes no responsibility or liability for the actions taken or not taken by the readers based upon such information. For legal and tax advice contact your attorney or tax adviser.

Rita Sollie, Direct Insurance Representative with North Coast Life Insurance Company (NCL). No gimmicks or schemes here, just genuine and honest service. We don’t sell insurance, we solve problems. I welcome the opportunity to show you what NCL can do for your Life Insurance and Financial needs.
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Contact info: Phone: 800.541.5858 Email: rita.sollie@nclife.com or Live Chat below.

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