| Advertisement |
|
|
Take Stock
1. Asked yourself, "where am I, financially?"
It is a good idea to really figure out where you are with your finances. Pull out your banking and brokerage account statements, check your balances, and gather in one place all your fiscal information. Then take a good, hard look at what you see. If you have questions about the information presented on your financial statements don't ignore them. Ask questions, and get answers.
Be honest. Do you really have the time and energy to adequately research individual stock investments? Most of us don't have the experience and expertise of Wall Street traders. Be realistic about your ability to invest, assess your financial situation. Talking to co-workers and watching TV is not good investment research!
2. Determine what your Social Security retirement benefit will be. Calculate what you can expect as your Social Security retirement benefit and more at Estimate your retirement benefit at www.ssa.gov/planners/calculators.
3. How much do I need when I retire? The American Savings Education Council (ASEC) can help you get an estimate of what you'll need to have available at retirement to live as you'd like. ASEC is a nonprofit national coalition of public- and private-sector institutions undertaking initiatives to raise public awareness about what is needed to ensure long-term personal financial independence. To use their calculators go to Choose to Save.
The U. S. Department of Labor also has retirement plan information on its web site at www.dol.gov.
Getting Started
What kind of IRA best suits my needs? Traditional IRA or Roth IRA?
Traditional IRA
A traditional IRA is a personal savings plan that gives you tax advantages for setting aside money for retirement. Contributions you make to a traditional IRA may be fully or partially deductible, depending on your circumstances and generally, amounts in your traditional IRA (including earnings and gains) are not taxed until distributed.
Roth IRA
A Roth IRA is an individual retirement arrangement that, except as explained below, is subject to the rules that apply to a traditional IRA. It can be either an account or an annuity.
To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is set up. A deemed IRA can be a Roth IRA. Unlike a traditional IRA, you cannot deduct contributions to a Roth IRA. But, if you satisfy the requirements, then qualified distributions (defined in Publication 590) are tax free. Contributions can be made to your Roth IRA after you reach age 70 1/2 and you can leave amounts in your Roth IRA as long as you live.
See Publication 590 PDF for more information on choosing a traditional IRA or Roth IRA.
FAQs regarading IRAs
Q: Can an individual contribute to a traditional IRA if he or she has other retirement plans?
A: Yes, individuals can contribute to a traditional IRA whether or not they are covered by another retirement plan. However, they may not be able to deduct all of their contributions if they or their spouses are covered by an employer-sponsored retirement plan. [Note that contributions to a Roth IRA are not deductible and income limits apply.] See Publication 590 for further information.
Q: How can an individual convert a traditional IRA to a Roth IRA?
A: A traditional IRA can be converted to a Roth IRA by:
Rollover - A distribution from a traditional IRA can be contributed to a Roth IRA within 60 days after distribution.
Trustee-to-trustee transfer - The financial institution holding the traditional IRA assets will provide directions on how to transfer those assets to a Roth IRA with another financial institution.
Same trustee transfer - As with the trustee-to-trustee transfer, the financial institution holding the traditional IRA assets will provide directions on how to transfer those assets to a Roth IRA. In this case, things should be simpler because the transfer occurs within the same financial institution.
A conversion results in taxation of any untaxed amounts in the traditional IRA. Also, the conversion is reported on Form 8606, Nondeductible IRAs.
For more information on to save for your retirement the U.S. Securities and Exchange Commission offers a roadmap to help you get started with savings and investing properly.
Sources: Internal Revenue Service (www.irs.gov); SEC (www.sec.gov/investor/pubs)