Retirement Planning – Make use of an IRA.

As is alluded to elsewhere on this retirement planning website, it is a vitally important step to not just think about retirement planning but actually carry it out as soon as possible. It is so very easy to procrastinate, so if you haven't already set time aside to detailed retirement planning, I strongly urge you to do so in the next few days. Go and get your diary right now in fact and jot down a reminder to arrange an appointment with a local financial advisor this week.

For the purposes of this particular article on retirement planning, I want to focus on IRAs.

So what do the letters even stand for? An IRA, not to be confused with the Irish Republican Army, is simply an Individual Retirement Account.

For many people, these are a very good option for saving towards our retirement. An IRA is an account type that has certain tax characteristics. Because the US government encourages us to save for retirement, we enjoy certain tax advantages within an IRA. However, there can be penalties if you don’t use an IRA for its intended purpose. More on the pros and cons of IRAs in a moment.

IRAs can come in two different formats - Traditional and Roth. Firstly the traditional IRA.

Anyone who works can have an individual retirement account(IRA) . The employer in this case, unlike the 401(k) plans, has no role to play with this account. It is opened and maintained by the individual, hence the title, and more often than not would be opened with a investment company. The normal annual contributions cap is $2,000 although this cap may be lower if you have a retirement plan at work or your income reaches certain limits. One thing which an IRA does have in common with a 401(k)is the age at which one can withdraw funds without incurring a penalty which in both the cases is 59yrs and 6mths.

What then is a Roth IRA?

The primary difference between the Roth and the traditional IRA is that you have to hold onto the Roth for a minimum of 5 years. Also, IRA’s are intended for your retirement savings. This means that the IRS does not want you to take the money out until you reach “retirement age” – as determined by the IRS (this is age 59.5 in 2005). If you take your assets out of an IRA before that age, or from a Roth before the 5 years are up, you may have to pay a 10% penalty on the amount you withdraw. You may have to pay income tax on that amount as well – this can add up!

As mentioned above, there are a couple of nice advantages with an IRA.

In terms of spousal accounts, if you have a job but your spouse does not, you can contribute up to $3,000 of your income to a spousal IRA for him or her.

A further plus point is that there is no minimum age limit for IRA participation. If your 15-year-old son has compensation from working in the family business you can pay up to the limits in an IRA.

So remember to act quickly on your retirement planning if you haven't already started. You can acquire adequate knowledge by visiting a bank, a self directed IRA advisor or search on the internet. The fact that you have visited this site for some information is an encouraging start. Follow some of the advertised links for further information and advice and check out our other articles found on our retirement planning homepage.

Don't procrastinate any longer and don't suffer from a lack of knowledge in this area which has cost clients hundreds of thousands or even millions of dollars over the years. Here's to your success with your retirement planning!