Six Reasons to Consider an IRA

An Individual Retirement Account (IRA) offers a great way to save additional money for retirement. Here are six reasons why.

Did you know?

1. You are eligible for an IRA, even if you're already participating in an employer-sponsored retirement plan.Some people mistakenly believe they cannot contribute to their employer-sponsored retirement plan and to an IRA in the same year. In fact, you can contribute to both, provided you have earned income. For the 2008 tax year, you can contribute a maximum of $15,500 (or up to $20,500 if you’re age 50 or older) to workplace retirement plans such as a 401(k), 403(b) and 457(b).

With an IRA, you can contribute up to $5,000 for the 2008 tax year or a maximum of $6,000 if you’re age 50 or older. If you can, invest the maximum to both of these products to add fuel to your retirement savings program. Note that withdrawals prior to age 59½ are generally subject to a 10% IRS early withdrawal penalty in addition to ordinary income tax. back to top 2. You can contribute to an IRA, even if you don’t qualify for a tax deduction. If you are covered by an employer-sponsored retirement plan and your adjusted gross income (AGI) is below a certain amount, you may qualify for an income tax deduction if you contribute to a Traditional IRA.

For example, for 2008, single filers whose AGI is less than $53,000 can get a full deduction for a contribution; single filers with an AGI that is between $53,000 and $63,000 can get a partial deduction. Married couples who file jointly and have an AGI that’s less than $85,000 can qualify for a full deduction; partial deductions may be permitted for married couples whose AGI is $105,000 or lower. If you have earned income and are not covered by an employer-sponsored retirement plan, you are eligible for the full Traditional IRA tax deduction.

If you’re earning too much to qualify for the tax deduction, this doesn’t mean you aren’t eligible for an IRA — you can still contribute to a nondeductible Traditional IRA or to a Roth IRA. Investing in a Roth IRA can be advantageous because if you own a Roth IRA, you can withdraw your contributions tax- and penalty-free at any time, and can withdraw earnings federal tax- and penalty tax-free — provided you have had the IRA for five years and satisfy one of the following conditions:

Reach age 59½
Use the funds for a qualified first-time home purchase (up to a $10,000 lifetime maximum)
Become disabled or die

You can make a full $5,000 contribution to a Roth IRA if you’re a single filer whose year 2008 AGI is less than $101,000 ($159,000 for joint filers). Partial contributions are available if you’re a single filer and your 2008 AGI is between $101,000 and $116,000 ($159,000 and $169,000 for joint filers).

back to top 3. Using electronic funds transfer to contribute automatically is an easy way to invest, even if you have limited amounts of money available. By setting up contributions through electronic funds transfer (EFT), you can make either a one-time contribution or arrange for ongoing contributions to your IRA automatically. Through EFT, you can save even small amounts for retirement consistently over time. (Please check your financial services provider regarding the availability of EFT.)back to top 4. IRAs can help older investors potentially increase their retirement accumulations. If you’re age 50 or older, you can take advantage of the IRA “catch-up” provisions, which, for the 2008 tax year, enable you to contribute an additional $1,000 to an IRA. Also, if you’re age 70½ or older, have earned income and meet the AGI requirements, you’re eligible to contribute to a Roth IRA. back to top 5. If you’re self-employed, a Simplified Employee Pension (SEP) IRA offers a good option for saving large amounts for retirement.For the 2008 tax year, you can contribute up to 25% of your compensation (i.e., earned income), or a maximum of $46,000, to a SEP IRA.

Learn more about SEP IRAs, or for further clarification on the rules governing SEP IRAs, contact your tax advisor.

back to top 6. You can use an IRA to consolidate retirement assets. If you have retirement savings with several financial services companies, you can consolidate this money by rolling it into a single IRA. Consolidating your savings with one provider can make it easier to manage your accounts and investment allocations and keep track of paperwork.

Before deciding to transfer assets, note that there may be tax consequences. For example, 60-day rollovers may be subject to taxation, surrender charges and penalties. Also, any money you’ve accumulated prior to 1987 is not subject to minimum distribution rules at age 70½; because you don’t need to begin withdrawing this money until age 75, you may want to refrain from rolling it over to an IRA. For decisions relating to consolidation and rollovers, consult with your tax advisor regarding your particular situation.

In addition to the inherent risks associated with investing in securities, there may be fees associated with IRAs.

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