Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy Government PANICs! Sterling Collapses! - 19th Mar 20
Coronavirus Market Crisis - Nowhere to Hide! - 19th Mar 20
Coronavirus Most Likely GDP Economic Outcome for Q1 and Q2 2020 - 19th Mar 20
How COVID-19 Leads to 2008-Style Bank Crisis - 19th Mar 20
Coronavirus Impact on Global Economic GDP Numbers - 19th Mar 20
Bticoin Crash Big Channel Review - 19th Mar 20
Gold is Doing Its Job…Silver Will Come Back as a Safe-Haven Asset - 19th Mar 20
The Chartology of Coronavirus Deflationary Event - 18th Mar 20
Fed Slashes Rates to Zero and Introduces QE in Response to COVID-19. Will Gold Rally Now? - 18th Mar 20
Coronavirus - Nothing to Fear but Fear Itself - 18th Mar 20
The Stocks Bear Market Is Upon Us... Or Not - 18th Mar 20
US and UK Coronavirus Containment Incompetence Resulting Catastrophic Trend Trajectories - 17th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

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

6 Critical Money Making Rules