Individual Retirement Account Services, or
IRAs, are special accounts with tax advantages to help you save for retirement.
Different types of retirement accounts
provide you with different ways to deposit money, invest money, keep the money
earned, and even to use the money you accumulate.
So be sure to consider the
differences among the types of accounts and choose the one(s) that work best
for you.
The specifics for each type of IRA are
complex. Read carefully news reports and related information. Watch for the
fine points that are easily missed or can be misleading.
With the complexity of the individual
retirement account services and the options, few people are prepared to make
all the decisions without good advice from a qualified financial advisor and/or
tax preparer aware of your personal goals and risk tolerances. An IRA is only
one piece in your total financial plan.
There
are two types of IRAs:
- Traditional IRA Services
- Roth IRA Services
Traditional Individual Retirement Account Services
The traditional individual retirement
account services let you to save money without paying taxes until you withdraw
it. The money you put into the IRA can lower your taxable income and grows
tax-free while it's in the individual retirement account services.
This type of individual retirement account
services is subject to income tax for the estate or beneficiary AND it may be
part of the estate for estate tax calculations.
The effect on an estate will
depend on state and federal tax laws in effect at time of death, marital deduction;
beneficiary, etc. (Talk with your attorney.)
The non-deductible traditional individual
retirement account services do NOT make sense if you qualify for a Roth IRA. In
each case, there would be no current tax savings.
With the Traditional IRA,
there would be income tax on earnings/growth, mandatory withdrawal, etc. Whereas
the Roth IRA withdrawals would be federal income tax free.
The deductible traditional individual
retirement account services are subject to income tax for the estate or
beneficiary AND it may be part of the estate for estate tax calculations.
The
effect on an estate will depend on state and federal tax laws in effect at time
of death, marital deduction; beneficiary, etc. (Talk with your attorney.)
Roth Individual Retirement Account Services
The Roth Individual Retirement Account services
offer a slight twist on the traditional IRA. There are differences in the tax
advantages and who can open a Roth IRA. The most attractive part of Roth IRAs
is that your money is withdrawn without paying federal taxes.
Penalties may apply for withdrawals within
the five year minimum. After five years, contributions may be taken out. It is
assumed that contributions are withdrawn first.
Distributions from interest/growth before
age 591/2 are generally subject to a 10 percent penalty. Exceptions are withdrawals:
- For education.
- Up to $10,000 for first-time home buying.
- In the event of disability or death.
Distributions need not begin at a specified
age. There is NO excise tax for excess distribution.
- The Roth income is Tax free, What does that mean? It may not
be what you think.
- Do you qualify?
- How much can be contributed each year and when must funds be
withdrawn? Penalties are very costly for contributing too much or for
waiting too long to begin withdrawals from a traditional IRA.
At conversion, tax-deferred funds and
interest/growth are subject to federal income tax as ordinary income.
There are
individual retirement account services limitations on the number of conversions
in a given time period. Some plans may also limit transfers. Funds should not
come to you but go to your new plan in a direct transfer.
Advantages of the Roth Individual Retirement Account
Services
- Eliminates federal income tax on earnings and growth.
- Roth IRA does not have to be withdrawn starting at any age.
- Beneficiary may be able to continue income tax free status.
- Calculations prepared as examples for case studies determined
that the Roth IRA provides more income during retirement than other
alternatives. (Advantages decrease if tax rate is significantly less
during retirement.)
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