IRA Accounts

[novon]

In light of all the taxes I owe this year, I was wondering if I could put some money in an IRA account. What are the pro/cons of doing that versus a traditional savings account?

Does one have to pay taxes after age 65 when the money can be withdrawn?

Where is a good place to get an IRA?

Thanks

 

[jdub1107]

I'd recommend Scottrade because they don't charge any fees. And go with Roth instead of Traditional, unless you need the money now. You can also take money out for purchase of a first home I believe.

Traditional IRAs

Traditional IRAs ? An account holder with earned income may make yearly contributions up to the age of 70 ½. Some individuals receive a non-refundable tax credit for contributions. Contributions to Traditional IRAs may or may not be deductible. Regardless of whether or not a deduction is received for the contribution, the earnings generated on contributions to Traditional IRAs are tax-deferred. IRA holders do not include earnings from Traditional IRAs in income until the year a distribution is taken.

Required minimum distributions must begin when an account holder reaches the age of 70 1/2.


Roth IRAs

An account holder who has earned income within specific income limits may make yearly contributions. All contributions to Roth IRAs are made with after-tax dollars. Therefore, no tax deduction may be taken. Some individuals receive a non-refundable tax credit for contributions. The portion of a Roth IRA distribution that represents a return of contributions is not taxed when distributed since these assets were contributed on an after-tax basis. Distributions of earnings taken for certain qualifying purposes after a five-year period are tax-free.

 

[DaveSimmons]

If you have a company 401k or earn a high wage, you may not qualify to make a tax-deductible traditional IRA contribution.

Roth IRA contribution rules are much looser, but you don't get a tax deduction. (Of course you get tax-free growth, which is a very good thing.)

 

[EagleKeeper]

Please put questions in the Tax thread at the top of ATOT