Which IRA is right for you?

 

Individual Retirement Accounts (IRA’s) provide a popular way to plan for one’s retirement.  Choosing between a Roth IRA and a traditional IRA becomes easier when we understand their differences.  Studying the chart below is a good way to begin this process.  It also makes sense to ask questions to make sure that all of the rules are clear before making any investment.

 

Product

 Best if...

 Features / Benefits

Traditional IRA  You want to save for your future and take advantage of tax benefits at the same time.

- Tax-deductible contributions if you qualify

 

- Earnings grow tax-deferred, helping you build savings more quickly

 

- Taxes are deferred until retirement, when you’re likely to be in a lower income bracket

 

- No AGI (annual gross income) retirement income limitations for contributions

 

- Maximum current contribution per individual is $5,000

 

- Distributions can be taken as early as age 59 ½**

 

- Contributions may continue prior to the year that you attain age 70 ½

 

- Catch-up contribution allows investors age 50 and older to contribute an additional amount

 
Roth IRA  You want to forgo tax benefits today for tax-free income during retirement.  

- Contributions are not tax deductible

 

- Contributions may be withdrawn at any time without penalty or taxation**

 

- Earnings may be free of federal taxes

 

- Maximum current contribution per individual is $5,000

 

- Contributions may continue beyond age 70 ½

 

- No mandatory distribution

 

- Catch-up contribution allows investors age 50 and older to contribute an additional amount

 

 

Learn more about retirement plans:

 

 

** Prior to age 70 ½ early withdrawal penalties may apply on CDs.

  


 

 

Smart Budgeters Expect Inflation

 

 

 

 

 

 

When you are budgeting, don’t forget to account for inflation.  Year after year, the basic items that we buy cost more.  To get a sense of how much prices increase, we can look at the annual increases in the Consumer Price Index. The "AVE" column on the right is the most useful as it shows the average yearly increase or decrease. For example, in 2011, the chart shows that inflation was 3.2%.  To view charts of United States historical annual inflation rates, click go.

 

 

In the United States

 

From 2001-2010, the average annual increase has been 2.4%

Over that 10 year period, inflation increased a total of 23.2%

So an item that cost $100 in 2001, would cost $123.20 in 2010.

 

From 1991-2010, the average annual increase has been 2.6%

Over that 20 year period, inflation increased a total of 60.1%

So an item that cost $100 in 1991 would cost $160.10 in 2010.

 

From 1914 through 2010, the average annual increase has been 4.2%

Over that 97 year period, inflation increased a total of 2,080.6%

So an item that cost $100 in 1914 would cost $2,080.60 in 2010.

 


 

 

It is never too late to add financial progress to your New Year's Resolutions!

 

Click here to look back at the Top 11 Financial Tips for 2011 from the SEC (Securities and Exchange Commission)
 

 

 


 

Click here for previous Money Management for Adults
 

 

 

 

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