When was the last time you contributed to your Individual Retirement Account (IRA)? In most cases, it has been a very long time. The majority of you may not even bother with it. Not contributing to your IRA is understandable since there is so much confusion over how to even begin investing in IRAs. Why is there so much confusion? It is because, over the last 20 years, we have had repeated legislation continually revising the rules about IRAs. However, despite the complicated rules involved in determining your eligibility for contributing to a Traditional IRA or a Roth IRA, the long-term benefits should not be ignored or out-weighed by the confusion involved in the process.
One way to begin the process is to further your knowledge concerning the benefits one may reap by contributing to an IRA. For example, did you know that by taking advantage of the $4,000 annual contribution you could accumulate at an annual rate of 6.00% which amounts to $52,723 in ten years, and $147,142 in twenty years, and $316,232 in thirty years? No matter where you invest your IRA, or whether you contribute to a Traditional IRA or a Roth IRA, the most important thing is that you start now. It is easy to avoid a contribution to an IRA because of the many expenditures you desire to make today instead of thinking ahead to the long term benefits that an IRA would accumulate. However, statistics prove that most of us will live to a ripe old age and will enjoy many years of retirement. When you reach the retirement age, you will need all of the funds you can muster in order to retire comfortably.
If you decide to contribute to your IRA, some factors that will help you determine which IRA is best for you is to first to understand that the Traditional IRA contributions are tax-deductible upon contribution. They are also taxable upon distribution. The Roth IRA, however, does not offer a tax deduction upon contribution, but it is tax-free upon distribution. If you are in a lower tax bracket you will be better served by contributing to the Roth IRA. Those of you that are in a high tax bracket should consider the Traditional IRA. Once you have decided which IRA makes sense to contribute to, you will need to review an eligibility table that will define the remaining criteria. The criteria will determine your contribution eligibility taking into account factors including whether you are married or single, whether you or your spouse participate in an employer-sponsored retirement plan, and what your annual income may be. This is an important and helpful table which you can obtain from the internet, your banker, your investment broker or advisor, your insurance agent or your tax advisor. If you are not a “do-it-your-selfer” any one of these advisors can assist you in determining and establishing the right IRA for you.
Lastly, if you are above age 50 you can contribute an additional $1,000, for a total contribution of $5,000, in the form of a catch-up contribution. If you are feeling overwhelmed by all of this information and lacking in the proper finances to even begin establishing an IRA, just remember that it took only one drop of water to begin the ocean. So start your tax-sheltered savings today and look forward to a more abundant future.
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Corey N. Callaway
Investment Advisor Representative