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Do Not Ignore IRA Opportunities

Do Not Ignore IRA Opportunities

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 2014, full contributions can be made if Modified Adjusted Gross Income is less than $181,000 for joint filers or $114,000 for individual filers. No contributions are allowed if MAGI is above $191,000 or $129,000 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

$5500 for 2014. Indexed for inflation thereafter

$5500 for 2014. Indexed for inflation thereafter

Catch-up contribution for those age 50 and above

$1000 for 2014. Indexed for inflation thereafter

$1000 for 2014. Indexed for inflation 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. 2014 contributions must be made by April 15, 2015 and 2015 contributions can be made from January 1, 2015 until April 15, 2016. The sooner you make your contributions, the more your money will grow.

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