A traditional IRA allows for contributions of up to $5,000 a
year. Contributions made to your IRA
account are tax deductible. All earnings
made within your IRA account are deferred until you make withdrawals from the
account at which time you will pay the taxes on the amount of money withdrawn
from the account.
The Roth IRA also allows for contributions of up to $5,000 a
year. Where the two accounts differ is
how the account is taxed. Roth account
contributions are not tax deductible. But
like the traditional IRA, the earnings within a Roth IRA are shielded from
taxation. Additionally, when deductions
are made from a Roth IRA, they too are tax free.
For those of you who are late bloomers on saving for
retirement, you are in luck. An additional $1,000 in contributions is
authorized for those ages 50 and up.
With both programs offering great benefits, there must be a
catch right? Well the catch is the simple;
you can’t touch your money. Well that is until you are 59.5 years old. I know some of you who were skeptics about
IRA’s are now losing interest but please remember it is a retirement program
and there are always exceptions to the rule.
Some of these exceptions are purchasing a home, having a disability,
medical expenses, and long term unemployment. If you don’t meet one of these exceptions and
need to withdraw money prior to 59.5 years of age, you are still able to do so,
but at a price. You will be taxed on the
amount of money you have withdrawn at your tax rate, and incur a 10% fee for
the amount withdrawn.
So you have made the decision to start saving for your (and
your family’s) future, but don’t know where to start. The easiest place is to make an account is with
your favorite financial institution. Many
investing firms offer both traditional and Roth IRA accounts that are easy to
start online. Each firm offers different
rates for trading.
From my personal experience with talking with fellow
Soldiers of all ranks, finding $5,000 to contribute to an IRA account is
difficult. The reasons I receive for why
they can’t start saving are all too common.
If you are thinking of a reason now, I am sure I have heard it. But you need to start saving for your future,
because no one else is going to. When I
was a junior enlisted Soldier I couldn’t afford $5,000 a year. Instead I could afford about $100 a month and
created an allotment to save automatically.
A few months later I received a promotion, a pay increase of about $50 a
month. So I increased my allotment to
reflect my pay raise. After a few years
and several pay raises later, I was able to get my monthly allotment to $400 a
month. You can establish an allotment
with MyPay to have the funds sent directly into your IRA account.
Please consult with your accountant for advice unique to your situation.
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