Do Not Ignore IRAs
Your Individual Retirement Account can be part of the foundation of a financially secure retirement. Many experts suggest that your living expenses after retirement to average 60% to 75% of your pre-retirement expenses. Social Security will provide some benefits, but your retirement income will primarily depend on your other assets including your company retirement plan and your IRA.
Almost every individual with earned income can contribute to either a regular IRA or Roth IRA. Here is a simple chart to help you decide which one is right for you.
Feature |
Regular IRA |
Roth IRA |
Age restrictions |
Under 70 ½ |
No age restrictions |
Income eligibility restrictions |
Must have earned income equal to or greater than contribution. No restriction on maximum income. |
Must have earned income equal to or greater than contribution. For 2005, full contributions can be made if Adjusted Gross Income is less than $150,000 or joint filers or $95,000 for individual filers. No contributions are allowed if AGI is above $160,000 or $110,000 respectively. |
Taxation of earnings in IRA |
Tax deferred |
Tax deferred |
Distribution requirements |
Must start at age 70 ½ |
No distribution requirements |
Taxation of distributions |
Taxed as ordinary income |
Not taxed |
Contribution limits |
$4000 for 2005 through 2007 and $5000 for 2008 |
$3000 for 2004 and $4000 for 2005 |
Catch-up contribution for those age 50 and above |
$500 for 2005 and $1000 thereafter |
$500 for 2005 and $1000 thereafter |
Deductibility of contributions |
Deductible if not covered by employer plan or if income is below certain levels. |
Not deductible |
Penalty for withdrawal before age 59 ½ |
Generally, 10% penalty |
Generally, 10% penalty |
The savings, tax deferral and earnings opportunities of an IRA make good financial sense. You have until April 15th of the following year to fund your IRA. 2005 contributions must be made by April 15, 2006 and 2006 contributions can be made up to April 15, 2007. The sooner you make your contributions, the more your money will grow.
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