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Start Saving Now
By Betty Hodges, CPA
Is this the year you have resolved to manage your money better? Your early working years are the best time to begin saving for retirement. Starting early makes a huge difference in the amount that your cumulative savings with compounded interest will become. Investing annually in an Individual Retirement Account (IRA) can give you "more bang for the buck" since it is tax deductible and the interest it earns is not taxed until money is withdrawn.
If you aren't covered by an employer's retirement plan, you can contribute up to $5,000 (but not more than 100 percent of your annual compensation) into an IRA for 2011. If you are married and neither of you is covered by an employer's retirement plan, you can each contribute up to $5,000 (but not more than 100 percent of your compensation). If either is covered by an employer's retirement plan, the allowable contribution for 2011 is limited or phased out if your adjusted gross income is $90,000 or more ($56,000 or more for singles). If you're older than 50, you can contribute an additional $1,000.
To get an IRA deduction for 2011, open an IRA account at your bank or other financial institution and make the deposit on or before April 15, 2012. You can deduct the IRA contribution even if you don't itemize deductions.
The money has to stay in the IRA until you reach at least age 59.5, when withdrawals are taxed at regular tax rates. If you are saving money that you expect to need earlier, don't put it in an IRA, as earlier withdrawals are taxed at regular tax rates, plus an additional 10 percent penalty tax. At age 70.5, annual distributions will be required.
If you can't make a contribution to an IRA because you are covered by an employer's retirement plan and your adjusted gross income is too high, you still can contribute to a nondeductible Roth IRA. You don't get a current deduction, but distributions after age 59.5 are not taxed, except for the accumulated interest.
Click here to read the complete article on Blush Magazine's website.
The contents and opinions contained in this article are for informational purposes only. The information is not intended to be a substitute for professional accounting counsel. Always seek the advice of your accountant or other financial planner with any questions you may have regarding your financial goals.
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