Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Cushion Your Retirement by Investing in IRAs

Personal_Finance / Pensions & Retirement Apr 06, 2011 - 07:16 AM GMT

By: Money_Morning

Personal_Finance

Best Financial Markets Analysis ArticleLarry D. Spears writes: If I were to recommend a stock and guarantee a return of 10% to 28% on your investment in a single day, you'd no doubt line up at your broker's door to place your orders.

But then why do so many people fail to make the maximum contribution to their Individual Retirement Accounts (IRAs)? After all, in its traditional version, an IRA offers exactly the same return, depending on your personal tax bracket.


Contributions to a traditional IRA are immediately deductible from income for the tax year in which they are made.
In other words, if you contribute the maximum of $5,000 to your traditional IRA before April 15, 2011, you can deduct the entire $5,000 from your reportable income for the 2010 tax year. That means you won't have to pay taxes on that $5,000 - which, depending on your tax bracket, is the equivalent of getting an immediate 10% to 28% return on the money.

This is perhaps the only such retroactive deduction the average taxpayer can take (outside of some more esoteric items involving depreciation, income averaging and the like).

What's more, if you're over age 50, you can contribute a maximum of $6,000 - a provision the government added to help older Americans "catch up" on their retirement savings (and, no doubt, take some of the heat off the Social Security system).

Once the contribution is made, taxes on the investment earnings they generate accumulate tax-free - greatly enhancing the compounding effect - until such time as they are withdrawn, when they will be taxed as ordinary income. (Note: The "instant return" feature doesn't apply to Roth IRAs since those contributions are made with "after-tax" dollars, allowing for later tax-free withdrawals of both principal and earnings.)

The only restriction on contributions - for both traditional and Roth IRAs - relates to income levels, which is why the "instant return" is limited to 28% rather than the 35% high-income taxpayers must shell out. For 2010, taxpayers are allowed IRA contributions based the following income limits:

Individual filers - Earnings less than $105,000, full contribution; $105,001 to $120,000, partial contribution; over $120,000, no contribution.

Married couples filing jointly - Earnings less than $167,000, full contribution; $167,001 to $177,000, partial contribution; over $177,000, no contribution. (Note: Married couples filing separately can put money in an IRA only if they earn less than $10,000.)

For future reference, the limits will increase for the 2011 tax year, as follows:

Individual filers - Earnings less than $107,000, full contribution; $107,001 to $122,000, partial contribution; over $122,000, no contribution.

Married couples filing jointly - Earnings less than $169,000, full contribution; $169,001 to $179,000, partial contribution; over $179,000, no contribution. (Note: The $10,000 limit for married couples filing separately will still apply in 2011.)

Because of those limits, taxpayers with incomes in the upper end of the 28% bracket have their IRA privileges phased out. For 2010, that bracket ranges from $82,401 to $171,850 for single taxpayers, and from $137,301 to $209,250 for married couples filing jointly.

Even with those limits, more than 80% of U.S. taxpayers are eligible to make IRA contributions - but, sadly, a remarkable number are failing to take full advantage of the IRA tax incentives.

According to a recent survey by the Employee Benefit Research Institute (EBRI), 41% of American workers are notsaving for retirement via any means - either with personal savings or through employer-sponsored retirement plans - and only 23% of those who are saving regularly max out their annual contributions.

This is a costly mistake - depriving you of both the instant return represented by the deduction, and the opportunity for your retirement savings to grow without any annual tax burden - so don't make it. Consider maxing out your IRA contribution for the 2010 tax year if you haven't already, and doing the same for 2011 so your money can get a head start on tax-deferred growth.

Here are a couple of additional points before you dig into your wallet:

•IRAs, either traditional or Roth (which, by the way, is named after Sen. William V. Roth, Jr., R-DE, who came up with the idea as part of the Taxpayer Relief Act of 1997), can only be funded with cash or cash equivalents. Transferring any other type of asset - such as stocks, precious metals, or real estate - will cause you to lose the preferred tax treatment.
•Once your funds are in the IRA, they can be invested in a variety of assets - including mutual funds, bonds, insurance products such as annuities, and stocks (including, in some cases, stock options) - but investments in "hard assets" are usually restricted.
•If you don't want the expense and uncertainty of having someone else manage your retirement funds, you can establish what is known as a "self-directed IRA" in which you actively manage the money yourself (within the asset limits mentioned above).
•You do not have to establish your IRA through your employer. Individuals can set up IRAs on their own, subject to the same restrictions applied to employer-sponsored plans.
•If you are self-employed or run a small business, you can set up what's known as a "SEP-IRA" and have your business make the contributions on your behalf. However, if you set up a SEP-IRA for yourself, you must also make similar contributions for your employees.
•Annual contributions can be split between traditional and Roth IRAs, so long as the total contribution does not exceed the $5,000 limit (again, $6,000 if you're over 50).

The choice between a traditional IRA and Roth IRA is yours to make, based on your expectations of current and future tax liabilities. If you think you will be in a lower tax bracket in retirement than you are now, then a traditional IRA is probably the best choice since your tax liability will be lower when the money comes out of the IRA than it is now. Conversely, if you think you'll have a higher tax burden in the future, when you begin withdrawals, then the Roth IRA may be best since you'll owe no taxes on the money - either principal or earnings - when you withdraw it.

Having said that, I personally prefer the traditional IRA for one simple reason: I don't trust Congress.

Social Security carried a promise of tax-free retirement income, as did my father's Railroad Retirement - but both are now taxed above a certain (very low) income limit. I don't believe Congress will be able to resist the temptation to tax all the money coming out of Roth IRAs.

As such, give me my traditional IRA tax deduction now, and I'll worry about future taxes later.

Source : http://moneymorning.com/2011/04/06/...

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Rick
06 Apr 11, 13:56
Investing In IRA's? You Really Can't Be Serious!

It's an interesting idea, but unfortunately every city and state in the nation is going to tax the living daylights out of those plans' earnings when they are withdrawn (which is beginning to happen now). This is assuming of course that the federal government won't confiscate those retirement plans in the meantime. One would fare far better just to hide the money under the mattress.


IRAvest
07 Apr 11, 09:17
Cussion Your Retirement By Investing WITH your IRA

Money Morning,

Totally agree with you. IRA's are a great way to keep Uncle Sam away. If you do have a IRA and your an accredited investor I suggest you take a look at IRAvest.com Iravest allow Brokers, Borrowers, Private Lenders to propose opportunities in which SD IRA;s can review and inquire.

~ IRAvest


Post Comment

Only logged in users are allowed to post comments. Register/ Log in