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Make sure your IRA is in shape for healthy retirement

Dudley Irwin and Fraser HornVail, CO, Colorado

Regular exercise and a proper diet can be the foundation for a healthy body. Similarly, tax-advantaged saving in an Individual Retirement Account can be the foundation for healthy finances in retirement. To make sure your traditional IRA is as fit as possible, regular maintenance and good habits are required. Here are a few guidelines. Give your traditional IRA a proper diet. Many advisers recommend consistent, maximum contributions to an IRA, even when they are not tax-deductible. Contributions to an IRA grow tax-deferred, meaning that no taxes are due on the earnings until money is withdrawn. Tax-deferred growth can have a dramatic impact on your retirement savings over time. Exercise all available tax options. Whenever possible, traditional IRA contributions should be used as a tax deduction. Investors often assume they are not eligible for a tax deduction when they are. Know the rules. Everyone under 70, with earned income, may contribute to a traditional IRA. Annual contributions of $4,000, or $4,500 for those age 50 and older, are available for 2005. If you are married and working, with a non-working spouse, you may also contribute to your spouses traditional IRA. Keep good records. When non-deductible contributions are withdrawn from a traditional IRA, they are tax-free so its important to keep track of them. In a separate file, maintain a list of contributions. If you wait too long to compile this information, youre likely to make mistakes and end up paying more taxes than necessary. Invest wisely. Once you have made your traditional IRA contribution, you must make decisions about how this money will be most effectively invested. Seek the counsel of a professional financial adviser to help you. Have regular checkups. Personal, economic and market conditions bear watching, since they may suggest modifications to your investment selections. A self-directed traditional IRA allows you to use virtually any investment vehicle and make appropriate changes as needed. Resist bad habits. Youve spent a lifetime building a retirement nest egg in your tax-advantaged retirement plan. You shouldnt consider this money a windfall to be spent on a new car or boat youve always wanted. Tax-deferred retirement dollars cannot be replaced. If you change jobs or take an early retirement, resist the temptation to take the money in your retirement account. Rolling it into an IRA rollover account is generally the best alternative. Youll be glad you did, because a hands-off policy during the accumulation years could make a substantial difference in your lifestyle during retirement. Learn about rollovers. The rules for retirement distributions are fairly straightforward, but it is important to understand them fully. A wrong move could cost you a sizable portion of your savings. Talk with your financial and tax advisers well in advance of your retirement. Consolidate your IRAs. Many people have several traditional IRA accounts at a number of financial institutions. While most people are in this situation by accident, some do it intentionally because they mistakenly believe it will provide diversification. Since most IRA accounts incur fees and other expenses, having several different accounts could work against the long-term goal of accumulating assets. And while diversification can be an important element of good money management, you shouldnt need a number of different accounts to accomplish it. Plan withdrawals. Even though mandatory distributions from a traditional IRA are required at age 70, deciding when to begin withdrawing from your IRA and who should be the beneficiary are important factors in your estate plan. If your IRA is sizable, you may be subject to an unexpectedly large tax bill on withdrawals, or your heirs may pay additional estate taxes. Is it better to start withdrawing now or let the funds grow tax-deferred? Who should be your beneficiary, your spouse, a child or grandchild, or your trust? The optimal solution must be based on your specific situation.Provided courtesy of Fraser M, Horn and Dudley M. Irwin, of 1st and Main Investments in Edwards. Horn and Irwin investment advisers with Berthel Fisher. Registered Representative of and securities offered through Berthel Fisher & Company Financial Services, Inc. Member FINRA/SIPC. 1st & Main Investment Advisors is independent of BFCFS.


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