One of the key components of many individual retirement plans is the deferring and reduction of taxable income. Three common plans that offer these features are the:
- Traditional IRA (individual retirement account)
- Roth IRA (individual retirement account)
- Individual 401k
All three offer tax-deferred growth (building of interest without taxation) which can greatly enhance the growth of the retirement nest-egg by putting off payment of tax until funds are withdrawn from the plan. As the owner you must begin receiving distributions from the plan when you reach age 70 ½.
The Roth IRA provides a unique exception to tax-deferral and mandatory distributions. Roth IRAs are funded by after-tax contributions; grow without any taxation and funds are withdrawn on a tax-free basis. Plus, Roth IRA’s do not require mandatory withdrawals at age 70 ½.
For the 2011 – 2012 calendar year, you may invest:
- Up to $5,000 into an Individual IRA
- An additional annual $1,000 “catch-up” contribution if you are age 50 or older
Note: The IRS limits the amount of deduction you may take based on your income. However non-deductible contributions to an IRA can still provide tax-deferred growth opportunities.
You can learn more about how an Individual Retirement Plan could serve you by calling or e-mailing us.