T'is the Season for IRAs

We are in the peak of tax season, and as a result it’s the perfect time to think about opening an IRA. With the current state of the economy and no end in sight, it’s important to find a good safe alternative for retirement funds. An Individual Retirement Account (IRA) could be the solution.

While we hear discussion about IRAs frequently, many may not understand their purpose. An IRA is a fund to which you contribute money regularly until retirement – at which point you begin withdrawing. How does it differ from other deposit accounts? There are tax advantages as long as you don’t withdraw until at least age 59 ½. All IRAs are subject to tax penalties for early withdrawal – so you should have a separate deposit account to cover emergencies.

Each year maximum contribution limits are set by the federal government for IRA accounts. And, while you may open an IRA at any time, you have until April 15^th to make contributions to an IRA for the previous tax year. Many people have their tax returns prepared, and then determine how much to contribute for the previous year.

There are various types of retirement accounts, the most common of which are Traditional and Roth IRAs. A Traditional IRA allows you to defer taxes on the funds until you begin withdrawing. The money deposited can lower an individual’s taxable income and will grow tax-free while it’s in the IRA account. The Roth IRA allows you to pay taxes on the contribution in the tax year of the contribution. Because you pay the taxes up front, you can withdraw the money in retirement without the burden of tax withholding.
Some things to keep in mind when determining the account that’s right for you –

• Will you be in a lower tax bracket at retirement?
• Do you want additional tax obligations in retirement?

Of course you should always consult your tax advisor to help guide you on which way to go.

At some financial institutions, Legacy Banks included, the vehicles for IRAs are the fixed-rate and variable rate IRA CDs. These tend to have better rates than regular CDs with the added protection of deposit coverage by the FDIC (for amounts up to $250,000 until 12-31-09) and in the case of Legacy Banks, DIF coverage for all amounts above FDIC limits. In other words – full deposit coverage. At maturity, you can choose to renew for the same or different term or roll the money into a different type of investment vehicle.

A variable rate IRA CD fluctuates throughout the term, but provides you with the opportunity to deposit additional funds at any time. The fixed-rate IRA CD only allows you to make deposits during the CD’s grace period just after maturity. Of course, if you have additional funds to deposit at other times, you may open another IRA CD.

The bottom line is that there are lots of choices, and it’s never too early to save for retirement. And with tax season upon us, it’s a good time to begin. If you have any questions about IRA options, feel free to contact Legacy Banks at 800-292-6634.