Ten tips for the proper care and feeding of an IRA
Vail, CO, Colorado
Regular exercise and a proper diet can be the foundation for a healthy body. Similarly, 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 advisors recommend consistent and 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 Contributions to an IRA grow tax-deferred, meaning that no taxes are due on the earnings until money is withdrawn.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. People 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 spouse’s IRA.
– Keep good records. When non-deductible contributions are withdrawn from a traditional IRA, they are tax-free, so it’s important to keep track of them. If you wait too long to compile this information, you’re likely to make mistakes and end up paying more taxes than necessary.
– Invest wisely. Once you have made your IRA contribution, you must make decisions about how this money will be most effectively invested. Seek the counsel of a professional financial adviser.
– Have regular checkups. Personal, economic and market conditions bear watching, since they may suggest modifications to your investment selections.
– Resist bad habits. You’ve spent a lifetime building a retirement nest egg. You shouldn’t consider this money a windfall to be spent on a new car or boat. Tax-deferred retirement dollars cannot be replaced. If you change jobs or take an early retirement, resist the temptation to spend the money in your retirement account. Rolling the sum into an IRA rollover account is generally the best alternative. 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 advisor.
– Consolidate your IRAs. Many people have several IRA accounts. While most people are in this situation by accident, some do it intentionally. Since most IRA accounts incur fees and other expenses, having several different IRA accounts could work against the long-term goal of accumulating assets. One self-directed IRA account could handle many years of contributions and many types of investments.
– Plan your withdrawals. Even though mandatory distributions from a traditional IRA begin at age 70, deciding when to begin withdrawing from your IRA and who should be the beneficiary are important factors in your overall 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? The optimal solution must be based on your specific situation and should be discussed in depth with your financial adviser and your tax and estate planning professionals.
The accuracy and completeness of this material are not guaranteed. The opinions expressed are those of Fraser M. Horn/Dudley M. Irwin and are not necessarily those of Berthel Fisher or its affiliates. This material is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Provided by courtesy of Fraser M Horn/Dudley M Irwin, Investment Advisor with Berthel Fisher in Edwards.