Individual Retirement Plans The IRA’s

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Most people who have planned for their retirement have either Roth or traditional IRA’s which they will use to transfer retirement plans from their employers upon terminating employment. While accumulating retirement income in these plans, it is wise to solicit the help of a CPA in determining how these plans will be taxed at year end and during the distribution phases of these accounts.

A Traditional IRA is a retirement plan in which an individual can accumulate money for retirement over and above the 401(k) or other retirement plan, which one may have at work. Unlike the 401(k), the traditional IRA allows for accumulating money for retirement with after-tax dollars.

The money can be invested in mutual funds, or stocks and the earnings can be reinvested and grow tax deferred, as long as the money remains in the account until age 59 ½. Once the person turns 59 ½, he/she must pay taxes on the money which is withdrawn from the account. By this time, the person in a high income tax bracket may be in a lower tax bracket and therefore will pay a lower tax rate than the year when the money went into the account.

The maximum amount which a person can contribute to an IRA is $6000 per year and the person can no longer contribute money after age 70 ½, which is the latest that the person can begin to withdraw money from the account.

With a Roth IRA, the owner of the contract can withdraw money before age 59 ½ without incurring the 10% penalty in certain situations.. It is suitable for accumulating money for college funding, and other large expenses which must be withdrawn before age 59 ½.

For example. a contract holder may withdraw money from a Roth IRA without incurring a ten percent penalty if he/she becomes permanently disabled, has to withdraw money to pay medical expenses for which he/she will not be reimbursed, he/she plans on withdrawing money to purchase a home as a first time home buyer, needs to pay higher educational costs for the family or self, has been collecting unemployment for more than twelve weeks and needs to pay medical insurance premiums, owes back taxes to the IRS, or has reached age 59 ½. If the contract owner dies before age 59 ½, the estate would not be required to pay taxes upon inheritance of the account.

There are many types of annuities to invest the IRA, if one is seeking safety. With the recent occurrences in the stock market over the last six years, Baby Boomers in particular may be a little hesitant about investing in the stock market or mutual funds. Additionally, an annuity may be the right vehicle for someone who needs safety, but more of a return than the banks are offering. To accurately assess your needs, a qualified insurance agent can offer assistance.

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