Are You on Track to Meet Your 2012 IRA Savings Goals?

Written by: John Landers

As October ends, it’s a good time to evaluate your 2012 IRA savings goals. Determine where you stand. If you fall short of your goal at this point, the following information can help you get refocused and determine what you need to do to get back on track.

Since its initial introduction by Congress in 1974, the Individual Retirement Account (IRA) has become one of the most popular long-term investment vehicles. Many individuals, even if they already have an employer-sponsored retirement plan, choose IRAs as another option to help secure their retirement.

 IRA Contributions

Whether you choose to setup an IRA at your bank, insurance company, mutual fund or brokerage house, you have a wide range of investment options for growing the account. An individual retirement account functions as a personal, tax-deferred account for individuals with earned income and their spouses.

The primary advantage of the account is the ability to accumulate earning tax-deferred until withdrawals or distributions from the account. The contribution may not be deductible.

 IRS rules allow you to contribute to traditional or Roth IRAs the smaller of:

  • $5,000
  • Taxable earnings for the year.

Participants age 50 and older can contribute up to $6,000 each year.  If one spouse works, and the other one doesn’t, the working spouse can contribute into a separate account under the spouse’s name — up to the limit.

Money withdrawn from this tax-deferred gets taxed at the rate of ordinary income. In additional, some withdrawals taken before reaching age 59 ½ may result in a 10 percent penalty.

Contribution limits do not apply to IRA Rollovers or Qualified Reservist Repayments.

Remember, you can you can put away money in a traditional and/or Roth IRA account(s) along with making contributions to your employer’s plan.

Traditional and Roth IRA

You must start withdrawing money from a traditional IRA  at age 70 ½. However, if you were ineligible to use the IRA as a tax deduction while employed, you will not have to play taxes on that money when you receive distributions. You must pay taxes on any accrued earnings.

Roth IRAs has been around since 1997. Contributions made to a Roth IRA are not deductible.  The allowable contribution to the Roth IRA, which can be reduced or completely eliminated, depends on your filing status modified adjusted gross income (MAGI).

The rules allow individuals to withdraw contributions and earnings tax-free after age 59 ½ if the account has been opened for at least five years.

Other Considerations

You can own as many IRAs as you want, but you should try to consolidate the accounts to avoid excessive fee and charges. Under no circumstances can your contributions exceed your earned income.

If you find yourself behind of your savings goal for your IRA, have contributions automatically taken from your account each pay period or monthly. The rules for IRA permit retroactive contributions to both traditional and Roth IRA accounts. However, you must fund the account by the April 15, 2013 tax deadline.


Are You on Track to Meet Your 2012 IRA Savings...

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