Saving for Retirement? Consider an IRA with T.D.I.C.

T.D.I.C. = Tax deferability. Deductibility. Investment flexibility. Convertibility.

Herb White - Weighing Your Financial OptionsThese are the perks of having an IRA. IRA’s (individual retirement accounts) have been around for years, yet they often are overlooked as a great way to save. They have benefits that a 401(k) retirement account doesn’t have. Don’t be confused about them, though. IRA’s are not actual investments, but rather a “basket” in which you keep stocks, bonds, mutual funds and other assets you select.

The most common types of IRAs are the ones that you open on your own as an individual. However, many are opened by people who are self-employed entrepreneurs or have a small business. Other IRAs include SEP IRA’s and SIMPLE IRA’s. Many individuals ask their financial advisors for guidance when opening and selecting investments for their IRA’s. Let’s look at T.D.I.C.

T = tax deferability
The main reason that people love their retirement accounts is the savings on taxes. You can keep adding to your traditional IRA without paying taxes until you withdraw the money, typically when you retire. You can make contributions annually: $5,500 is the maximum until you are age 50, then the maximum is $6,500.

Roth IRAs, a variation of these accounts, are also good ideas. While taxes are handled differently with a Roth (see below), the limits are the same. One difference is that, with a Roth, to be eligible to fully contribute for maximum tax deferability, you must have a modified adjusted gross income in 2014 of less than $114,000 for singles, and $181,000 for married couples filing jointly. Singles earning less than $129,000 and couples earning less than $181,000 are eligible for partial contributions.

D = deductibility
If you earn less than $60,000 in 2014, you can deduct your contributions to your standard IRA from your income taxes. That’s a big plus. If you are a couple and earn under $96,000 you can receive a full deduction. Partial deduction limits also apply, up to $70,000 for singles and $116,000 for couples. Roth IRA contributions are not deductible.

I = investment flexibility
Unlike an employer-sponsored retirement plan, you select the investments for your IRA on your own or with the help of a financial advisor. This allows you a much wider range of investments than the 401(k) plan, including stocks, bonds, mutual funds, certificates of deposit and more. You aren’t locked in to any particular investment, either.

C = convertibility
Rolling over your employer’s 401(k) or other account into an IRA is easy, and it also is easy to switch from a traditional IRA to a Roth IRA, and reap some of the benefits of the Roth. There are some tax issues with a Roth, so do your homework before switching.

About those Roth IRAs—
Contributions to a Roth IRA are not tax-deductible (you pay taxes on it upfront instead), but withdrawals are totally tax-free, as long as you have held the account for five years or more and you are over age 59-1/2. Rolling a traditional IRA into a Roth IRA is a common practice. You can do so now regardless of income or marital status.

Additionally with a Roth, you are not subject to required minimum distributions beginning when you reach age 70-1/2.
Unfortunately, not everyone gets to take advantage of them. Each has eligibility restrictions based on your income or employment status and this short article only covers some of the issues. Additionally, all have caps on how much you can contribute each year and penalties if you take out your money before the designated retirement age.

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Provided courtesy of Herb White, MBA, CFP™, a CERTIFIED FINANCIAL PLANNER™ with Life Certain Wealth Strategies, 8400 E Prentice Ave, #715 Greenwood Village, Colorado,, (303) 793-3999. Securities and investment advisory services offered through Woodbury Financial Services, Inc. Member FINRA, SIPC and Registered Investment Advisor. Life Certain Wealth Strategies and Woodbury Financial Services are not affiliated entities. This information is being provided strictly as a courtesy. The content is not intended to provide specific advice or recommendations for any individual situation or product. The opinions of the author do not reflect those of Woodbury Financial Services, Inc. or its affiliates. This content has not been reviewed by the Broker/Dealer or its affiliates for completeness or accuracy.

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