It’s never too early to begin preparing for your retirement. One of the best ways to prepare for your retirement is to set up an Individual Retirement Account, also known as an IRA.
The purpose of an IRA is to serve as a tax-qualified personal retirement savings plan. Anyone who works can set aside a set amount in an IRA, whether they work for themselves or someone else, with the earnings on their investments tax-deferred until the date of distribution. In addition to tax deferral, certain individuals are permitted to deduct all or part of their contributions to their IRA. And as of 1998, certain individuals can also set up Roth IRAs, to which contributions are not deductible, but from which withdrawals at retirement are tax free withdrawals.
It isn’t hard to set up an IRA. An IRA can be established and a contribution made after the end of the first year. A deductible contribution can be made no later than the due date for filing the income tax return for that year, not including extensions; this generally means that you have until April 15th of the following year to make a contribution make the deduction on your tax return. So as of today, you still have another month to make 2013 IRA contributions.
As of 2013, the most you can contribute to an IRA in any single year is $5,500. Individuals aged 50 and older will also be allowed to make additional $1,000 catch-up contributions annually, to help them save more for retirement, so you could contribute up to $6,500. The same limits apply to those with more than one IRA, or more than one type of IRA. For example, when both you and your spouse have compensation, you can each contribute the maximum, or a total of $11,000 ($13,000 if you are both age 50 or more). You don’t have to contribute the maximum every year, and you can skip a year or even several years. But when you resume making contributions, the maximum still applies—you can’t contribute extra money to make up for years when you didn’t contribute. If you do contribute more than the allowed amount, a six percent excise tax penalty will be assessed.
No contributions may be made to an inherited IRA, in a form other than cash, or during or after the year in which you reach age 70 ½. You must begin taking distributions from an IRA no later than April 1st of the year following the year, or the year in which you retire, whichever comes later.
Remember, this was a brief and general introduction to Individual Retirement Accounts. The rules are slightly different for Roth IRAs, which have their own contribution and distribution limitations.
You can learn more about IRAs online from the Internal Revenue Service here: http://www.irs.gov/taxtopics/tc451.html
If you have any questions or need any assistance in finding a suitable investment or place for your IRA contributions please don’t hesitate to give me a call. I would be happy to assist you in setting up your IRA and building for your retirement.