Having an individual retirement account (IRA) can help you get started with retirement. Retirement planning is usually one of the furthest things on the minds of college students and new graduates. However, it’s a lot easier than many people think.

Individual retirement accounts allow you to easily set aside money for your retirement with some tax benefits.

What is the difference between a Roth IRA and a Traditional IRA?

Wikipedia defines Traditional and Roth individual retirement accounts:

• Roth IRA – contributions are made with after-tax assets, all transactions within the IRA have no tax impact, and withdrawals are usually tax-free. Named for Senator William Roth.
• Traditional IRA – contributions are often tax-deductible (often simplified as “money is deposited before tax” or “contributions are made with pre-tax assets”), all transactions and earnings within the IRA have no tax impact, and withdrawals at retirement are taxed as income.

As you can see, Roth IRA withdrawals are tax free while traditional IRA withdrawals are taxed.

How much can you contribute your Roth IRA?

The IRS has specific income limits with contributing to Roth IRAs. Right now you can contribute $5,000/year to a Roth IRA if your modified AGI is :

• $169,000 for married filing jointly or qualifying widow(er),
• $116,000 for single, head of household, or married filing separately and you did not live with your spouse at any time during the year, and
• $10,000 for married filing separately and you lived with your spouse at any time during the year.

How much can you contribute your traditional IRA?

Traditional IRAs have a different income limits with contributions. Right now you can contribute $5,000/year to a traditional IRA if your modified AGI is :

• More than $85,000 but less than $105,000 for a married couple filing a joint return or a qualifyingwidow(er),
• More than $53,000 but less than $63,000 for a single individual or head of household,
• Less than $10,000 for a married individual filing a separate return.

Where can you open an IRA?

The good news is many banks, brokerages, and credit unions offer both traditional and Roth IRAs. Some charge a flat fee for the year, some take a fee for each transaction made, others can take a percentage, and some do all of this.

The idea is to keep your fees as low as possible and get the best performance.

Some online options for opening an IRA:

• E-Trade (Annual fee and minimum are waived when you sign up for electronic statements)
• Vanguard (Some funds require $3,000 minimum)
• T. Rowe Price
• Charles Schwab ($1,000 minimum is waived if you direct deposit $100/month)
• Sharebuilder (No minimum to open; no admin annual fee)
• Zecco( No minimum to open; $30 annual fee)

The sooner you start the better. It’s generally accepted that the sooner you start the better compound interest will treat you.

More Information on Individual Retirement Accounts

• Which IRA is the Best Deal? (Get Rich Slowly)
• The world’s easiest guide to understanding retirement accounts (I Will Teach You to Be Rich)
• Save Now, Retire Rich (Free Money Finance)
• How Much Money Do You Need For Retirement? (The Simple Dollar)
• Determine your Retirement Needs in 3 Easy Steps (Moolanomy)

_{»crosslinked«}

Be Sociable, Share!

• 

• How My Retirement is Currently Doing? (June 09 Update) My Retirement Account Update  It's been a while since I shared how my Roth IRA was doing. I checked my retirement account in October 2008 and shared how it went down over 20%. That certainly stung, but I didn't withdraw money in reaction to the market.  Since I'm investing for the......
• Retirement in Your 20s Retirement is usually one of the furthest things on the minds of college students and new graduates. You got bills to pay, including possibly students and car loans. You might think that you'll pay down your debts first, buy the house, and then save for retirement. After all, you should......

• Withdraw from your IRA with no Penalty? With all the RothMania spreading, especially since the income limits for converting from a traditional to Roth have been removed, I'm afraid that the needed discussion regarding the Traditional IRA has been neglected. So today, I'd like to discuss how you can avoid a penalty while withdrawing money from your......
• 401k Introduction The original 401(k) plan was created and set into motion by Congress in the year 1978 as a way for people to save up for their own retirement before they had to pay taxes on that income. This was done in an era were the traditional pension plans already seemed......