From
Your Perspective:
Retirement catch-up for late starters
Other retirement
savings vehicles
If you’ve made the maximum contribution to an
employer-sponsored
retirement plan
and can still invest more for retirement, or if such a
plan is not available to you, consider investing in an
IRA,
or individual retirement account. An IRA is a retirement savings
account you set up and manage on your own or with professional help.
The only requirement for putting money into an IRA is that you earn
income — whether for full- or part-time work. And you can add to your
IRA even if you’re contributing to a retirement plan at work, such as a
401(k),
403(b),
or a
Keogh plan
if you’re self-employed.
You
may have a choice among the three types of IRAs: traditional
deductible, traditional nondeductible, and Roth IRAs. It pays to
compare the benefits they offer and investigate which ones you qualify
for. All offer tax advantages, but with a deductible IRA you can
subtract your contribution before calculating your taxable income, and
with the Roth IRA you can eventually make tax-free withdrawals after
you turn 59 1/2, provided your account has been open at least five
years.
There are limits on IRA
contributions. In 2008, the most you can put into your account is
$5,000, and you can’t contribute more than you earn. One other
advantage of a tax-free Roth IRA is that if you continue to earn after
you turn 70 1/2, you can go on putting money into your account. That’s
not true with traditional IRAs, from which you must begin taking money
out when you reach that age.
IRA
contributions can make a difference in your long-term financial
security. For example, let’s say you invest $4,000 a year, or $333 a
month, for 15 years in a hypothetical tax-deferred account providing an
8% annualized return. You would accumulate $121,921 before taxes, more
than double your $59,940 contribution.
If you’re over 50
and qualify for an IRA, you can also make an additional catch-up
contribution of up to $1,000. You can add the catch-up contribution
each year even if you’ve been contributing the maximum over the years.
Spousal IRAs
If you don’t earn income but your spouse does, he or she can contribute up to the annual maximum into an account in your name. You decide how to invest those IRA assets, which belong to you.
