Individual retirement arrangements (IRAs) are one of the most viable answers to the question of how to ensure a secure retirement.
- independence - can be opened and funded without any employer participation.
- immediate tax benefits- with contributions and/or earnings tax-deferred until retirement.
- accessibility- there is no minimum contribution in any year, and you choose your own investments and financial organization.
The requirements for contributing to a Traditional IRA are few. If you are under 70 1/2 , and have earned income from employment, up to a maximum of $5,000 through 2012 (spouse contribution limit per couple increased to $5,000).
Individuals who attain age 50 or older before the end of the taxable year may be eligible to contribute an additional amount to a Traditional and/or Roth IRA as a catch-up contribution. ($1,000 for 2012 and later years)
To be eligible to make a catch-up contribution to a Traditional IRA, the IRA holder or IRA holder's spouse, if married and filing a joint federal tax return, must have earned income to support the additional contribution amount. The IRA holder must also not have yet reached his or her 70 1/2 year.
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The money you contribute to a Roth IRA has already been taxed. So the principal amount is never subject to taxes or penalties in the future, as long as you stay within the contribution guidelines.
This retirement plan allows the money you contribute to grow tax-deferred. If you do not withdraw any of the earnings until you have had a plan for at least five years, and satisfy one of the qualifying events, those tax-deferred earnings become tax-free.
Individuals may contribute up to $5,000 per year if their modified adjusted gross income (MAGI) is less that $110,000. If an individual’s (MAGI) is between $110,000 and $125,000, they may contribute a reduced amount adjusted for their income. Married couples filing jointly may contribute up to $5,000 each if their MAGI is less than $173,000. Contributions for joint filers are reduced for MAGIs between $173,000 and $183,000.
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Funds can be used at eligible schools nationwide, including K-12 expenses. Withdrawals for qualified expenses receive favorable tax treatment. Non-qualified withdrawals may be subject to penalties and taxation.
The contribution limit per beneficiary is $2,000 per year. A transfer to another member of the beneficiary's family is allowed. Contributions to a Coverdell ESA are treated as a completed gift from the contributor to the beneficiary.
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