IRA Contributions for Last Year
Procrastinators take heart! You can make the previous year's contribution to an individual retirement account (IRA) up until tax day on the current year. Paying your IRA contribution "late" doesn't affect your contribution limit for the current year.
IRA Information for the Self-Employed
If you're self-employed, set up a SEP-IRA. A SEP-IRA allows you to contribute a much higher percentage of your earnings to your retirement than a traditional IRA would. You will also enjoy more tax benefits from contributing more. For 2006, you can contribute 25% of your income to a SEP-IRA up to $44,000. This amount is adjusted each year. Visit the IRS Web site to get IRA information about future adjustments. You can set up a SEP-IRA for your home business even if you have regular employment and a retirement plan elsewhere.
A 401(k) and an IRA
Here's a bit of info IRA investors should consider when contributing to an IRA account: you can make contributions to your company's 401(k) plan at the same time that you contribute to an IRA. Because many companies match at least part of your 401(k) contributions with company funds, use the 401(k) account first. Once you've achieved a contribution level that makes you eligible for the most matching funds you can get, start contributing to an IRA.
Roth IRA vs. IRA
Tax info IRA: Contributions to a traditional IRA are tax deductible as long as you meet certain income requirements. Just like with a 401(k) you won't be taxed on the money in your IRA until you take it out of the account. Contributions to a Roth IRA, on the other hand, are made with post-tax dollars and grow tax free. A Roth IRA benefits people who are in a higher tax bracket when they retire. It's impossible to predict this with certainty, but most people should fall into this category. When in doubt, choose the Roth IRA.
Roth IRA Eligibility
A Roth IRA is an individual retirement account that allows your contributions to grow tax-free. To determine whether or not you're eligible to contribute to a Roth IRA, you'll need to know your adjusted gross income. For most people, this can be found on your 1040 tax form. If you're single and your adjusted gross income is less than $95,000 you can contribute to a Roth IRA and receive all of the tax benefits. If your AGI is between $95,000 and $110,000 you can contribute, but you will receive fewer tax benefits. If you are married and file jointly, your adjusted gross income must be less than $150,000 for full tax benefits and between $150,000 and $160,000 for partial tax benefits. These limits are modified frequently, so check the IRS Web site for information about upcoming changes.
IRA Rollover
If you¡¯ve had a few different jobs and you¡¯ve contributed to your retirement plans at each of the jobs, consolidate your retirement plans with an IRA rollover. A rollover allows you to take money invested through your former employer and put it in an account that you have more control over. Especially if you have several retirement accounts in different places, consolidating into one IRA account will save you a lot of time. To initiate an IRA rollover, contact any investment broker, collect your retirement account information and contact an investment broker either online or in person. The IRA rollover money doesn't count toward your annual IRA contribution allotment.
Ask For a Direct Rollover
When you leave your job, you can either leave the money you've contributed to the 401(k) with the company, or you can ask to have it transferred to an IRA with an IRA rollover. If you choose to transfer it, be sure to specify that you want a "direct IRA rollover." With a direct rollover, you won't be charged early withdrawal fees. Make sure you get a written explanation of your IRA rollover for tax purposes. Even though your rollover doesn't count as income, you must report it on your taxes.
How to Invest IRA Money
When you open an individual retirement account (IRA), you will have to decide how to invest the money. Unlike with an employer sponsored retirement plan, you'll have unlimited choices as to where to put your money. Don't be overwhelmed. Most people are best off putting their IRA investments in an index fund that tracks the S&P 500. When you invest in S&P 500 index funds, you'll be guaranteed to get an average market return, which is much higher than a return you can get with bonds or even most other mutual funds.
IRA Contribution Limits
It is currently possible to contribute up to $4000 per year in an IRA account. Those over the age of 50 are allowed to make additional contributions. These limits are constantly being changed, so look forward to saving even more in the near future. Check www.irs.gov for IRA information that can tell you specifically about changing contribution limits. Save as much as you can in your IRA account to avoid paying taxes and to fund your retirement.