Individual Retirement Accounts (IRAs) are a crucial component to many retirement plans.
As the first wave of the Baby Boomer generation begins to enter retirement this year, the focus on a comprehensive retirement plan has never been more prevalent. Most financial professionals agree that a comprehensive retirement plan should include some sort of employer sponsored retirement plan such as a pension plan or a 401(k). But they should also include your own personal savings plan, including an Individual Retirement Account (IRA).
There are two major types of IRAs available. Different IRAs apply to different circumstances in your career and your financial plan. The advice of a financial professional is crucial in choosing the right one.
Traditional IRA:
• You don’t pay taxes on your earnings until the time you withdraw from your account.
• You can contribute up to $4,000 a year.
• Over age 50 “catch-up” provision allows you to contribute up to $5,000 a year.
• The ability to deduct contributions from your taxes depends on your filing status, adjusted gross income, and whether you’re considered an “active participant” in another account.
One of the drawbacks of a Traditional IRA is that you cannot make any more contributions during or after the year you turn 70½ years old. That same year, you must also start taking required minimum distributions from your account.
There are certain withdrawals you can make from a Traditional IRA without penalties, including qualified higher education expenses. One’s ability to deduct contributions to a Traditional IRA from their income taxes are subject to income limitations. Non-qualified withdrawals made prior to age 50½ will be treated as ordinary income and assessed a 10 percent penalty. Always check with your financial professional before withdrawing from an IRA.
Roth IRA:
• Contributions are made with after tax dollars.
• The contribution limits and “catch-up” provisions are the same as Traditional IRA.
• Earnings from a Roth IRA will not be taxed when you make qualified withdrawals.
• Contributions are not tax deductible.
• There are no age limits on contributions.
• No required minimum distributions however restrictions on distributions do apply.
Some restrictions do apply to Roth IRAs. If you are married and file a joint tax return, you must make less than $166,000 a year to qualify. If you are married, live with your spouse, and file a separate tax return, you must make less than $114,000 a year to qualify. If you are single and file as the head of household, or married but didn’t live with your spouse during the year, you must make less than $114,000 a year to qualify.
The Roth IRA and the Traditional IRA both share many of the same qualities. But even the slightest differences can make all the difference in the world when deciding which IRA is best for you. There are many more details and much more information available from a financial professional. The added information can help you make the final, fully informed decision as to which IRA suits your retirement plan best.
Lawrence D. Sprung, CFP® of Mitlin Financial Inc., is a Registered Representative with Securities America, Inc., a Registered Broker/Dealer, member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc., a SEC Registered Investment Advisory firm. Lawrence D. Sprung, Investment Advisor Representative. Mitlin Financial Inc. and Securities America are unaffiliated. Written by: Securities America, Inc. Distributed by: Lawrence D. Sprung.
He can be reached at (631) 952-4466 or by e-mail at lsprung@mitlinfinancial.com. Feel free to forward any questions, or future topics you would like to see discussed to info@mitlinfinancial.com and put longisland.com in the subject line.
About the Expert: Lawrence Sprung is a CERTIFIED FINANCIAL PLANNER® who works hand in hand with retirees, small business owners & entrepreneurs and corporate executives. Utilizing his years of experience as a financial professional he assists them in developing a plan that will help them in becoming and remaining financially independent.
Larry has the unique ability to educate his clients on issues regarding their financial lives in such a way that they understand their investments as well as the strategies being utilized to assist them in the future. His ability to take the most complicated of issues and break it down to a level of clarity for the client is remarkable. This ability separates him from the many other advisors.
With his expertise, Larry and his clients are in a unique situation to build a roadmap for their financial future rather than addressing these issues after hitting a bump in the road.
One way Larry continually educates his clients, as well as potential clients, is through the use of seminars. He has given educational workshops on such topics as Estate Planning, Building Your Retirement Nest Egg, and Tax Free Investing. In addition, he has also provided classes for CPA?s to earn their valuable CPE credits.
Larry is also an active member of the local business community. In 2006, Larry was selected as one of Long Island Business News? ?40 Under 40?. He has also assisted in raising monies for various Long Island Charities such as the National MS Society and The Breast Health Center at Nassau University Medical Center. In addition, Larry serves as the Chairperson for the Long Island Chapter of The American Foundation For Suicide Prevention.
In addition to his business accomplishments, Larry is a loving husband to his wife Denise and a devoted father. In his spare time he enjoys spending time with his family, watching hockey and playing golf.
Advertising
Print this Page
Send to a Friend