10 Things You Should Know About Your IRA
The IRA choices you make will impact how prepared you are for retirement
Individual retirement accounts held an estimated
Delay or pre-pay your taxes.
Traditional IRAs allow you to defer paying taxes on up to
Later contribution deadline than 401(k)s.
While you generally must make contributions to employer-based retirement accounts by
Most IRA money is rolled over from 401(k)s.
More than 10 times as many dollars are added to IRAs through rollovers than through direct contributions, according to an
Older age for retirement withdrawals.
Workers who leave their jobs at age 55 or later (or age 50 for public safety employees) can take penalty-free 401(k) withdrawals at age 55. If retirees roll that money into an IRA, they will have to wait until age 59 1/2 to avoid the penalty. "If someone is 56 and they are retiring, they should roll over the part of the 401(k) they are not going to foreseeably need in the next few years and leave in the 401(k) what you need in the next few years," says
Penalty-free early withdrawals allowed.
There are several ways to avoid paying the 10-percent tax for taking withdrawals before age 59 1/2. You can take penalty-free early withdrawals if you have unreimbursed medical expenses that are more than 7.5 percent of your adjusted gross income, use the withdrawal to pay for health insurance after losing your job, become disabled, or are a military reservist ordered to active duty. You can also use the money to pay for higher education expenses or a first home purchase up to
You are responsible for shifting your investments.
Almost half (46 percent) of IRA assets are invested in the stock market. The most popular IRA investments are equity mutual funds and individual stocks (39 percent), cash (22 percent), bonds (14 percent), and balanced funds (12 percent), according to EBRI research. Individuals must choose their own investments and are responsible for shifting those assets appropriately as they approach retirement. "Those who are younger and in the accumulation stage are more likely to be invested in equities," says
Roth option increasing in popularity.
Withdrawals are required.
You cannot shield money from taxes in a traditional IRA indefinitely. Distributions become required after age 70 1/2. Those who fail to withdraw the correct amount must pay a 50-percent excise tax on the amount not distributed as required. You must take your first required distribution from your IRA by
Retirement savers using IRAs sometimes pay higher fees than those with a 401(k) because individuals no longer have the group's bargaining power to obtain lower-cost investment products and tend to make high-cost investment choices, according to a 2009
Special perks for high and low income savers.
Retirement savers age 70 1/2 or older who are in the fortunate position of not needing the money in their IRA can avoid paying income tax on their required minimum distribution of up to
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Personal Finance - 10 Things You Should Know About Your IRA
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