To Defer Tax Liability On Retirement Funds, Think Ira And Roth Ira

Individual Retirement Accounts (IRAs) have been around for a bit longer than 401(k)

plans and still offer a great alternative or extra cushion for retirement savings. There are many good reasons for considering an IRA.

No Pension or 401(k) is available to you.

It is not mandatory for an employer to offer any type of retirement plan to their employees. Even if yours does, you may not be eligible for either the employer's or the union's plan. You cannot depend on Social Security alone to provide a living for you in your golden years. If Social Security benefits are still around, they will not pay you much and were never intended to be a beneficiary's sole source of retirement income. Anyone with an income can open an IRA in a bank, through a financial planner or even online.

Contributions to an IRA savings account are capped at $5000 annually, so it will not be equal to the income you could receive from a 401(k).plan as contributions to 401(k) plans allow contributions of up to $16,000 per year for the current year. Still an IRA account is a reasonable means to supplement Social Security, a company pension and a 401(k) plan as well. If the IRA is opened early in one's career and with contributions made faithfully every payday, it could easily become a retirement investment vehicle by itself.

Save on Your Income Tax Now

You can make IRA contributions all the way up to April 15 or whatever date you normally file your taxes for the previous year. This allows you to review your tax bracket situation and your available savings after the fact of earning that income. This makes it easier to figure out if deferring the taxes on your IRA contribution is of benefit in your case. You can determine if the contribution would put you in a lower tax bracket and shed some light on how much you should continue to contribute. A 401(k) generally requires that you contribute a percentage of your pay every pay period. If you over contribute, you must make the decision as to whether to pay the penalty to get it back or pay the tax on the excess. An IRA contribution can be made at whatever interval you specify and will be deducted from your income automatically, but you do have the right to accumulate funds in the account for months until making the decision to turn it into an IRA savings account or some other type of investment savings account.

Just like a 401(k) plan, you can elect a traditional pre-tax IRA or a post-tax Roth IRA. The Roth plan's contributions are not tax deductible, but upon retirement the withdrawals are tax free including both the amount you contributed and the earnings. You may withdraw from your Roth IRA at any time without penalty, though earnings would incur tax and penalties if drawn prior to retirement for an unqualified exemption. Qualified exemptions include non-reimbursed medical bills and a down payment on a first home. There are advantages to the flexibility of such an investment as the money invested now has already been taxed and allows for tax free withdrawals upon retirement. The decision to be made is if that flexibility and deferred savings is worth surrendering the immediate tax savings of a traditional IRA.

Careful planning for retirement is the only way to ensure that you will have the worry-free, independent, and secure golden years that we all look forward to. There is a good retirement plan available for you, no matter what your situation may be. Understanding and utilizing the tax advantages that the government has set up for us is an important part of achieving a successful retirement.

by: Matt Golba

POST COMMENT

Effective Document Qualifications Options Pki -- Important Archival And In Addition Features Hard-boiled Lingo From The 1930s And 1940s The End Of Pulp And Paper Is Near. What Happened? A Marriage Of Science And Complete Strut Assembly. Spring Landscaping In Arizona: How To Plant For Beauty And Color Impact Seals And Gaskets For Unique Applications Basics Of Giganews And Usenet Service Top 7 Workout "mistakes" And Methods To Correct Them The Ultimate London 2012 Hospitality And Olympic Vip Packages Aboard A Superyacht In The Heart Of Th Lentil Recipes: Delicious And Nutritious Outsourcing E-learning Software Development And Real Estate Crm Software From India Essential Fitness Teachings And Tips That You Can Utilize Orlando Flights And Top Rated Attractions In The City