Individual Retirement Accounts (IRAs)

IRAs offer a convenient way to increase a person's savings for retirement. They offer a huge variety of investment options that allows them to be tailored to almost any investor. And, they offer tax advantages that make them attractive to nearly every investor. An IRA allows the investor the freedom to choose where his/her money is invested. A bank gives a great deal of security and allows an account to be opened for a very small amount of money, usually around $100. Mutual funds are a good option for less experienced investors who want to the safety of spreading his/her money around but with the possibility for greater gains. The minimum investment is usually $1,000. A brokerage allows an experienced investor total freedom the stocks they choose. The risk is greater, but so is the possibility for gains.

• IRAs are convenient because they offer certain tax benefits.
  
  • The IRA you choose should be based on what tax benefits you want to reap or more precisely when you want to reap them.
  • This ability to choose when you earn your benefits is a recent advent of a new type of IRA.
    
    
• There are two types of retirement IRA's
  
  1. Traditional IRA
  • An investor needs to identify what his/her tax rate will be at retirement. With a traditional form of an IRA, taxes are paid when money is withdrawn, but contributions to the account are tax deductible.
    
    
  2. Roth IRA
  • This is the newest form of an IRA. The Roth IRA was created in the mid 1980's. If an investor has a gross income less than $110,000 and might be in a higher tax bracket when retiring, a Roth IRA is beneficial. Contributions are not tax-deductible, but savings are withdrawn tax-free.
    
    In both of the above instances, the maximum amount you can contribute is $3,000 per year ($3,500 if you are over 50). That number will be going up to $4,000 in 2005 and $5,000 in 2008.
    
    
• Kids and a Roth IRA

• There is no limit to the age a child can contribute to a Roth IRA.
• The child must earn the money.
• The contribution limit is still $3,000.
• The potential gains and benefits are huge! The interest is earned and compounded over an extended period of time.
  

• The amount earned is usually too small to be taxed and is not taxable when withdrawn!

• By starting young, children make their savings for retirement considerably easier.