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Jan 23 2009 12:00AM


I am 41 years old and I want to open an Individual Retirement Arrangement (IRA). Where do I begin?


There are several types of IRAs, sometimes referred to as Individual Retirement Arrangements. According to RetirementDictionary.com, "individual retirement arrangement" is an umbrella term that covers individual retirement account and individual retirement annuity. These are retirement savings vehicles established by individual taxpayers. There are several versions of an individual retirement arrangement:

  1. Traditional IRAs, where assets accrue earnings on a tax-deferred basis and distributions are treated as ordinary income.
  2. Roth IRAs, where assets accrue on a tax-deferred basis, but qualified distributions are tax-free.
  3. SEP-IRAs, are established and funded by business owners/employers for their employees. The funding vehicle for a SEP-IRA is a traditional IRA.
  4. SIMPLE IRAs, are established and funded by business owners/employers for their employees. Employees may also make salary deferral contributions to SIMPLE IRAs, and versions of SEPs that are referred to as SARSEPs. Those include traditional IRAs, Roth IRAs and SEP-IRAs.

According to FPA member Mark Saunders, CFP®, of Saunders Retirement Advisors, Inc., "You can get an IRA from any financial company — a bank, brokerage firm or insurance company. You can also buy them directly from mutual fund companies over the internet.  You need to decide what you want to invest the IRA in and then you'll know which type of firm to contact.  Banks usually have CDs; insurance companies have annuities; and brokerage firms have stocks, bonds, and mutual funds.  You can invest in a mutual fund IRA at any of the above named companies."

"You can contribute up to $5,000 or 100 percent of your salary, whichever is largest.  If you 'buy' a traditional IRA, it could all be deductible from your 2008 taxes. If you're covered by a retirement plan at work, and make over a certain amount of income, your deduction could be reduced.  The limits start at $53,000 per year for a single filer and $85,000 for a married couple filing jointly or for a qualifying widow. If you contribute to a Roth IRA, you won't get a deduction now, but when you draw it out there will be no tax on the withdrawals.  You have until when you file your income tax to contribute to a 2008 IRA.  If you invest in a stock mutual fund in the future, the best way is to have it withdrawn from your checking account on a monthly basis. You'll be getting the benefits of dollar cost averaging and buying the shares at the lowest prices."

Learn more about saving for retirement.


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