What Is A Ira

Frequently Asked Questions

1. QUESTION:
   How is a beneficiary IRA taxed?
   I inherited a traditional IRA from my aunt after she passed away. I was wondering how it will be taxed. I plan on taking all of the money out in one lump payment soon. What taxes will I be responsible for paying?

   Federal? State (I live in Virginia)? Medicare? Social Security?

   About how much can I expect to pay? My wife and I make about 6,000/year combined and the amount in the IRA account is about ,000. Should I have money withheld when I take the distribution, or just pay at the end of the year?

   Thanks for your help!

   • ANSWER:
     An inherited IRA is taxed as ordinary income when you withdraw the money from the account. At your income level you are most likely in the 25% tax bracket, so you’ll pay at least 25% for federal income taxes. If the distribution puts you in the 28% bracket, the portion of the distro that exceeds the rollover point will be taxed at 28%.

     There’s little doubt that you are in the top 5.75% VA tax bracket, so add 5.75% for VA state income taxes.

     IRA distributions are not subject to FICA taxes.

     Withholding of income taxes is optional on distributions from an inherited IRA. The flat rate is 20% though some custodians may offer a higher optional rate if you wish.

     If you end up owing more than ,000 at filing time you may be subject to penalties for underpayment of tax unless you qualify for one of the safe harbor exceptions. The most common exception used is the 100% prior year exception. As long as you have paid in (through withholding or estimated payments) at least 100% of LAST year’s tax liability there won’t be any penalty as long as you pay whatever balance is due by the filing deadline.

2. QUESTION:
   Traditional IRAs: What is the maximum deposit I can make to my IRA in 2008?
   For TRADITIONAL IRAs (not Roth IRAs), the maximum one can deposit into thier IRA is US,000.00 during year 2007 (exceptions for those over 50).

   Does anyone know what the maximum will be for year 2008 for TRADITIONAL IRAs? I have “heard” but not seen the law that might raise the deposit to US,000.00.

   I have already read the IRS’ website but no info is available there on this subject for 2008 (yet).

   Please, can anyone direct me to a source that might be able to answer my question?

   Intelligent answers only. Thanks.

   • ANSWER:
     For 2008 the contribution limit is ,000, and ,000 if you are age 50 and over.

     After 2008, the contribution limit will raise in increments of 0 depending upon the level of inflation.

3. QUESTION:
   What is the difference between a Roth IRA and a Roth IRA term cd?
   What is the difference between a Roth IRA and a Roth IRA term cd? Does the Roth Cd act like a regular cd but with tax free interest? When the Roth CD term is up, do I have to roll it over into another Roth Ira cd? If I end the Roth Cd at the end of the term, is there a penalty?

   • ANSWER:
     Let me explain. You can take the money out of the Roth IRA account at anytime, but you may need to place the money back into the account or you will be taxed. A Roth IRA is a retirement account which requires 00.00 and may be withdrawn when you are 59 1/2. You will not be taxed as long as you take this money out after your 59 1/2. Take the money out before 59 1/2 and you may be taxed. A Roth IRA CD has a higher interest rate than the Roth savings account. Keep your money in here and you can earn more money. The roth IRA accounts(savings and CD) are designed to be withdrawn after your 59 1/2. Please don’t put your money here unless you want to save it for your retirement. Join my storeonwheels group in yahoo groups when you have money or business questions.

4. QUESTION:
   What exactly is a Roth IRA and should I start putting money in it? Im 22?
   Im 22 and just started my first “real job” right out of college. About to finish paying off my student loan and was looking at also investing in mutual funds and a Roth IRA. What all is involved with a Roth IRA? Does it have its on interest rate or whats the deal?

   • ANSWER:
     A Roth IRA is a tax advantaged account that allows you to put money into it after taxes, and allows the money to grow tax-free from that point forward. Therefore, as your investments grow, you will not have to pay taxes on that money ever again. The only potential downside is that once the money is invested in a Roth, you cannot take it out until you are 59.5 years old (government regulation). But, there is a huge advantage to having your money grow tax free.

     And once the money is in the Roth IRA account, you can invest in anything you want – stocks, mutual funds, bonds, etc. It is the perfect savings tool for someone in your situation.

5. QUESTION:
   What is the difference between a roth IRA and a normal investment account by a broker?
   1. In both cases I can invest only after tax money.
   2. I can withdraw my money whenever I want in both cases.
   3. I can only contribute ,000 per year in the roth IRA while I can contribute how much I want with a normal investment account.

   So why would I choose to open a roth IRA instead of a normal investment account where I can invest how much I want?

   • ANSWER:
     Any growth experiened in a ROTH IRA account is not taxed. Nor is taxed when you withdraw the money.

     With a standard investment you will be taxed when you realize any profit by selling the investment.

     So take an example where you have a ROTH IRA and a standard investment. Both start at 10,000 and both grow by 10%, to 11,000.

     When you withdraw your IRA (assuming no penalties for ealry with drawal), you will get the full ,000

     When you withrdraw the investment you will have to pay taxes on the ,000 of growth, so maybe you walk away with only ,700.

     This difference could add up to a huge amount over the lifetime of a ROTH IRA

6. QUESTION:
   What is the easiest way to distribute a decedent’s IRA to a dozen beneficiaries?
   An over 70 year-old died and left three IRAs to her living trust. The spouse is dead and there are 12 beneficiaries ranging in age from 30 to 85. Can we A) Sell the assets and pay the tax at the trust level? B) Combine the three IRAs and pass the minimum distribution out over X years? C) have the bank create 11 IRA beneficiary accounts and let the beneficiaries decide?
   My research tells me I can do any one of the above under the trust, but Extra37′s insight on the age range makes me prefer C. The bank can take it from there.

   • ANSWER:
     Due to the age range of the beneficiaries, it would be inequitable for you to pay out over x years since the 80 y/o would most likely get less in total but get it now, while the younger would have to wait to 59 1/2 but might get more (due to growth). Paying the tax at the trust level may be worsre than if the beneficiaries took it now, depending on the estate size. “Roll-over” the IRA’s into an IRA for each beneficiary and they can either cash it out and pay the tax, hold it for later or whatever fits their needs.
     Consult a CPA or tax professional for details as this could become tricky.

7. QUESTION:
   What is the easiest way to distribute a decedent’s IRA to 11 beneficiaries?
   An over 70 year-old died and left three IRAs to her living trust. The spouse is dead and there are 11 beneficiaries ranging in age from 30 to 85. Can we A) Sell the assets and pay the tax at the trust level? B) Combine the three IRAs and pass the minimum distribution out over X years? C) have the bank create 11 IRA beneficiary accounts and let the beneficiaries decide?
   Don’t worry about me. I know how to research the tax law and the bank won’t let me do something illegal. I was just looking for ideas.

   • ANSWER:
     I am no expert in this area and some one will probably have a better idea.
     Judging from what we had to do when my mother-law died, is all assets belonged to the trust. All stocks, funds, insurance policies were liquidated and passed to the trust. The trust then paid any appropriate taxes, and satisfied any debts.
     At that point the trust was dissolved and given to the heirs.
     In our case that was just my wife. In your case I suppose you just divide by 11.

8. QUESTION:
   What is the difference between an IRA and a Certificate of Deposit? Pros and Cons?
   I have invested in Certificates for years and want to learn more about the difference between an IRA and a CD. Can someone explain these in more detail for me? What I am looking for is the best interest rate for my dollar. I don’t need the money anytime soon, but don’t want to be majorly penalized if I were in dire straights either.

   • ANSWER:
     You are confusing an “investment” with an account type. A CD is a savings vehicle, or investment. An IRA is an Individual Retirement Acount, a tax-favored account for working individuals to save money for retirement. Opening an IRA is a no-brainer. Everyone needs a retirement plan. But that is not an investment. Once you establish an IRA, you then have to choose the investment.

     A CD is typically used for shorter-term savings. It is generally guaranteed and pays a lower rate of return. It is not going to enable you to build wealth for retirement, however, because lower yields don’t keep you ahead of inflation, especially after-taxes.

     Stocks are commonly used to accumulate wealth for retirement. Stock mutual funds are a great way for smaller investors to participate in a diversified portfolio of stocks that are professionally managed so you don’t have to make the tough buy and sell decisions. Such funds are not going to allow you to “strike it rich” but they are going to give you the best possibility to accumulate real wealth for your retirement.

     Incidentally, you can invest in mutual funds outside an IRA as well….that’s because an IRA is not an investment but rather a type of account that comes with some restrictions (like a 10% penalty-tax if funds are withdrawan before age 59 1/2), and some benefits (like tax-deductible contributions, if you qualify).

9. QUESTION:
   how to claim loss on my tranditional ira account ?
   I have trade some stocks in my traditional ira account in 2007 and have some short term gain. I am also holding a stock for a few years and still a loss in my ira account- I am planning to sell it. Do I have to sell it same year to net out my gain in my portfolio ? what is the tax rate for capital gain in ira account ?

   • ANSWER:
     Gains and losses within an IRA have no tax consequences and aren’t reported. When you withdraw money, the amount withdrawn is taxed as ordinary income to you.

10. QUESTION:
    How do I deduct investment advisory fees paid for professional investment services on my IRA,?
    An IRA, by definition, is deferred tax account. However, I did not use money inside the IRA to pay for the fee. I used “other money” from a non-IRA brokerage account. What is the form I use to list my fee’s (paid about K in 2007).
    Is this bundled with other deductions to meet a threshold?
    Is there anything else I need to know?

    Thanks all

    • ANSWER:
      Correct. It goes on Schedule A and is limited to 2% of your adjusted gross income.

11. QUESTION:
    What is the difference between a Roth IRA/IRA and mutual funds?
    Isn’t an IRA or Roth IRA just a bunch of mutual funds or should I go to Investing 101?
    Thanks.

    • ANSWER:
      Yep, you’re Investing 101 material and so are a million other people! The good news is that you are smart enough to ask the right question. An IRA ***of any kind*** is nothing but a retirement account designed to defer earned and unearned income until you are eligible to make withdrawals. In other words, it’s an empty shell until you put something in it. So, what can you put into an IRA? The average investor invests in stocks, bonds and mutual funds. The majority of wage earners invest in funds. More experienced investors buy stocks, bonds, options contracts and real estate in theirs. Check out the IRS website for complete information on this subject.

      Mutual funds are investment companies that buy stocks and bonds with the objective of making a profit. You can invest in a mutual fund with money that is deposited in an IRA or in a regular taxable account. If the fund is not sheltered in a retirement account, the income and capital gains are subject to personal taxes during the year when the gains took place. The IRA protects your gains from being taxed. You pay taxes on any income you receive, starting at age 59 1/2.

      Hawk

12. QUESTION:
    How much should financial planners get paid? If they move your money into a IRA and set up some other plans?
    I have been chatting with a financial planner. He has talked to me about different option for IRA and life insurance. The IRA is through a company I think called Allianz and he said that anytime you put money in there plan you get a 4% bonus. I think the then is taking 1% of that has commission but I could be wrong. I have to keep my money in this IRA for 10 years but it is promised to never go down over those ten years from the highest $ amount.

    He also discussed different types of insurane plans.. I have no idea. I am 34 single mother of 2 kids 3 &5. Any clue as to what type of plan would be good for me. My company doesnt offer a 401K. What % is reasonable for him to get on the life insurance?

    • ANSWER:
      OK, lots of assumptions being made here, and I suspect most of them are incorrect.

      First of all, you are not clear whether the Allianz annuity is a variable annuity or an indexed annuity. What you described could easily be either type, but my guess is that it is an indexed annuity because of the 10 year time frame. Variable annuities typically do not have surrender periods that last that long.

      If you are interested in a risk-free Allianz annuity, you would be best served by a MasterDex 5, however, it will require an initial investment of K to open an account. It will pay you 5% upfront on any deposits you make during the first 5 policy years, the term is 10 years, and it has no fees to you other than potential early withdrawal charges which are associated with nearly all annuities. Return-wise, you will have good years with double digit growth when the market has good years, you will have years with no growth when the market has bad years, and you’ll probably wind up with an average annual return between 5-7% over a 10 year span, depending on the S&P500 index of course. For a single mother of two, even though the potential is there to wind up with higher returns in riskier variable investments, losing any money may be difficult to stomach, and this may be a better option for you as it removes the downside risk from the equation but still gives you access to market based returns.

      If you don’t have K to fund into an IRA, your best bet is actually CD’s at a local bank until you build some money for a foundation. A lot of people think return is what really makes an IRA go, but really, it’s contributions that are far more important than return in the early stages. If you get 4-5% annual interest in CD’s for 2-3 years while you accumulate K, that is more than sufficient interest for a short-term account.

      Beware, once you put money into an IRA, you have to plan on not touching it until you turn 59.5 years old. If you take an early withdrawal from an IRA, aside from a few exceptions, you will be forced to pay a 10% penalty to the IRS on the amount withdrawn.

      Before all else however, you definitely should have a term life insurance policy. A 20-year term policy will be able to provide for your kids until the youngest is 23 and out of college, so if you were to die before then, the kids would be taken care of financially. The amount of coverage depends on how much would be missed if you passed away. Realistically, I recommend 0K-M policy, depending on how much you can afford. It’s amazingly inexpensive at your age for a considerable amount of insurance. Don’t make yourself insurance poor, but at the same time, it’s far more important for you to have term insurance than to fund your IRA, the funding of the IRA can be done if there is other money left over after the insurance premium is paid. Allianz also offers this insurance, and they are a rock solid company. You can shop the term rates, but you’re going to find all companies offer pretty similar premiums. Premiums never change on term policies during the term period, so you’ll have the same annual premium rate for the next 20 years.

      I strongly advise against giving up your e-mail address to any of the online insurance websites that advertise they’ll shop around for you or you’ll be up to your neck in spam e-mails.

      Any commission the financial planner gets paid for any of the things you are talking about should not be paid directly by you in any way. If the financial planner is trying to charge you any sort of fee, tell him/her to get lost. They get paid directly from the insurance company via commissions. The commissions never come from your money, the company fronts the commission to the agent based on money they anticipate earning by holding your money for a significant length of time.

      Side note: It was previously mentioned that you should seek a Certified Financial Planner or someone with similar creditentials – that’s a huge myth. All that is required to become a CFP is taking a short course and then a test. Any moron can get the designation if they study for the test, and it signifies absolutely nothing about the knowledge and/or ability of the advisor to actually help you.

13. QUESTION:
    When I withdraw money from my Roth IRA, do I have to deduct Federal or State taxes?
    I rolled over a rollover IRA into a Roth, which is now called a Roth IRA. When filing tax return, I had to pay Federal taxes on the whole amount that was rolled over. When I withdraw from my Roth IRA in the future, do I deduct Federal & State taxes from the amount that I am withdrawing, & if so, what percentage do I use. Will I get taxed on the amount of money that I withdraw, when I file next year’s taxes?

    • ANSWER:
      The year in which you transfer/roll the IRA into a Roth IRA is the year you pay state and federal taxes. Once the $ is in the Roth you never pay state or federal taxes on that money again no matter how much it grows………….. hmmmm…. unless the govt. changes the rules down the road…. but for now…. No. You don’t pay again no matter how much the money “grows.”

14. QUESTION:
    How much does it cost to open up an IRA account?
    Do banks charge different rates? Is it a rate? or a flat first time fee? to open up an IRA account. Which would be better? Roth or Regular? What’s the difference? Appreciate your help!

    • ANSWER:
      Many mutual funds charge no first time fee, although there may be an annual maintenance fee on small accounts.

      A traditional IRA allows you to deduct the contribution from your taxable income (if your income is below certain limits).

      A Roth IRA permits tax free withdrawls (as long as you abide by the withdrawl rules).

15. QUESTION:
    What if education costs are less than your Coverdell IRA value?
    If the education IRA and 529 plan I have for my son grows in value such that all education expenses are completely covered, what happens with the remainder? If there is a penalty, what is the rate?

    • ANSWER:
      Your educational IRA money has to come out by age 30 but the 529 plan has no age limit. Also, the educational IRA can be spent on any education ( high school, grade school, etc.) but the 529 plan can only be spend on college. Therefore, if it looks like you have over-funded:

      1. Use the educational IRA on high school and grade school expenses.
      2. Spend the educational IRA first.
      3. If there is any thing left in the 529 plan when your son finishes college, leave it in there. If you end up needing it for your retirement, spend it last. You will pay income tax and a 10% penalty on any earnings in the account that are withdrawn for non-educational purposes at that time. If you don’t need it for your retirement, make your son the successor owner and keep it available for a grandchild or other relative.

      Jim KIrby, CPA/PFS, CFP, CFS

16. QUESTION:
    what is the best advice for switching my regular IRA to a Roth IRA?
    Considering the current price of stocks, isn’ t this the best time(2008)to switch to a Roth IRA so that I can reduce my regular IRA minimum required distribution, in order to pay less income tax in the coming years? I am 73yrs old

    • ANSWER:
      Convertng to a ROTH does not mean that you must invest in stocks. That’s an independent choice. You could do stocks… or CDs, or Treasury bills, etc. Whether to switch is more related to your tax and financial situation. It coud be a great decision, or a poor decision. It just depends on your situation.

17. QUESTION:
    Roth IRA: What happens when you make more than the qualifications?
    It is my understanding that you can only open an IRA when you meet a few minor guidelines, one being that you must earn ,000 or less annually. What happens if you have an IRA open, but your salary goes up to, say, 0,000 (since qualification rises slightly every year)? A link to this information is what I’m looking for here, but any comments are more than welcome. Thanks!

    • ANSWER:
      Search for “pub 590″ on irs.gov

      http://www.irs.gov/publications/p590/ch02.html#d0e9252 and keep reading down through “What if You Contribute Too Much?”

18. QUESTION:
    What is more beneficial an Traditional IRA in the US State or a Trad IRA in Puerto Rico?
    I have been living in the USA main land since September. I was living in Puerto Rico and paying taxes there. Now I generated 2/3 of my income in Puerto Rico and the other 1/3 in the USA. I am trying to decide what will be more beneficial to open an IRA in Puerto Rico and deduct the IRA for the Puertorican taxes there, or open the IRA here and deduct it from the federal taxes here.

    • ANSWER:
      who has the highest tax rate? You should deduct it from whichever has the highest tax rate.

19. QUESTION:
    What paperwork is needed to process an employee who declines to participate in a SEP IRA?
    We have a small business with a SEP IRA with employer contributions only. One of the employees who meets the criteria for enrollment – age, income, and longevity – does not want to participate because her husband says they are not eligible to participate. I have referred them to the IRS links governing SEPs but she still will not join. What do I need to do to be compliant because “Failure to ensure that an eligible employee establishes an SEP IRA and receives SEP contributions could result in disqualification of the SEP plan by the IRS.”

    • ANSWER:
      i would suggest calling the irs taxpayer advocate or taxpayer helpline for assistance. both contact numbers should be on the irs.gov site. good luck.

20. QUESTION:
    What is the difference between a self-directed IRA and a Roth IRA?
    I’m 21 and considering opening a self-directed IRA so I can begin saving for real estate investments. Detailed easy descriptions and examples would be great. Thank you for your time.

    • ANSWER:
      Here’s information about how to buy real estate using funds in an IRA: http://moneygirl.quickanddirtytips.com/real-estate-in-IRA.aspx.

21. QUESTION:
    What is the difference between a 401 IRA and a 403 IRA? Is there a tax deductible IRA for the self employed?
    If a person is considered self employed in a sales position and will receive a 1099, is there a tax deductible account you can invest in? Other than a Traditional IRA or Roth IRA with the fixed limit?

    • ANSWER:
      You would have to set up a retirement plan such as a SEP, SIMPLE, or solo 401k. These plans may have increased contribution limits. Contact a financial institution such as the large mutual fund families, and they will assist you in setting up such a plan.

22. QUESTION:
    What is the cheapest way to open an IRA?
    I want to start a regular IRA. Is it cheaper to open it at a bank
    or a stock broker. I’m going to put in a couple thousand a year
    but I don’t want to pay a lot of front money. I understand that
    a lot of IRAs charge a 25 to 50 dollar a year fee.
    Thank-you Rajiv N and Rip for your answers.
    I Corinthians 13;8a, Love never fails.

    • ANSWER:
      ING Direct

23. QUESTION:
    What is the best sort of investment to put into a Roth IRA? High dividend stocks?
    I’m going to be starting a Roth IRA with the maximum contribition. I’m 33. What sort of fund would best take advantage of the tax deferral? High growth? High dividends? I don’t see the advantage of deferring the taxes on say, a stock fund, since you are still going to pay the capital gains on the growth when you eventually withdraw, correct?

    • ANSWER:
      No… You will not pay taxes of any kind upon withdrawal… It’s 100% tax free upon withdrawal at 59 1/2.

      I like index funds.

24. QUESTION:
    How do I invest my money in a Roth IRA?
    A friend told me that I should put my money in a Roth IRA for my future investments and retirement. I don’t know much about it and/or how to put my money into one but I am curious. I am a 17 year old emancipated minor in California who has a bank account already and a job.

    Thanks for all the help in telling me what a Roth IRA is and how to put my money in one (if I even should) in advance.

    • ANSWER:
      I think that it is great you are thinking about your future finances and retirment. It is never too early. Just make sure that any money you put in an investment is disposable cash, meaning you are willing to live without it.

      I think your friend is right. The sooner you start, the better because the money compounds over time. Basically, a Roth IRA is a tax deferred earning account. You can open an IRA account any where. It just depends where you want to invest it in. For example, I use my IRA to invest in stocks. So I open the account with E-trade to buy shares of the company I am interested in.

      You can use your IRA money in CD’s, Bonds, Mutual Funds, or whatever you want. Just know you are capped at the limit of K this year.

      Good luck

25. QUESTION:
    What do I do with my IRA in a market that is plummeting and so is my money?
    I am 29 years old and had about ,000 invested in a High Risk IRA and now I am down to ,400 after 2 months of Investment. I know that I am not retiring for many years but still am unsure if this is the best option for my money right now. I really am concerned about retirement and I want to make sure that I am doing the right thing in the retirement process.

    • ANSWER:
      This is a great time for investing, if you are young. Stocks are going down now and will go down further. But the market will turn around and you will wish you had invested more while stocks were so cheap. You will badly miss the best buying opportunity in your life if you wait until you know that the market has recovered. Because the only way you will know that is that stocks will be a lot more expensive that they have been.

      What ever you decide to do, track the fund you are in now for five years so you can for yourself what happens.

      Warren Buffet said that the economy is in a recession but he did not say he was selling. In fact he has often said that the best time to buy is when everyone else is selling.

26. QUESTION:
    Rollover IRA from old job 401K Can I add money to this and what is the tax implication?
    I have a Rollover IRA from a previous employer’s 401k plan. Can I add money to this and wha is the tax implication? Does monies added become tax deferred until retirement? Do I need to open another account?

    Thanks and Happy Holidays to all………….

    • ANSWER:
      If your Rollover IRA is separate from your other IRAs (if you have any), you can easily move it into another employer sponsor retirement plan. If you make contribution out of your own pocket (not from your paycheck) into your Rollover IRA, you lose the right to move your Rollover IRA into another employer’s retirement plan.

      In all IRAs, your investments grow tax-deferred. If you add money to it, you won’t pay tax until you withdraw it.

      If you don’t have your own IRA (beside the Rollover IRA), you should start a Roth IRA (if your income is below 0,000). In 12 months after you started the Rollover IRA, you can roll the assets from the Rollover IRA into a Roth IRA. Any withdrawals from Roth IRA are tax free after age 59 1/2.

      For more information about IRAs, check out this blog: http://obe231.blogspot.com

27. QUESTION:
    How much I am allowed to contribute to my ROTH IRA as a married couple?
    My husband and I currently have one ROTH IRA under my name.
    I also have 401k at my job, and he has his 401 at his job.
    I am wondering could he also contribute to an ROTH IRA?
    If so, what is the limits for him?

    • ANSWER:
      Depending on your age. If you are over 50, then you can contribute 00 each as long as you have made at least ,0000 in income. If you are under 50, then the max is ,000 each.

      Now if you make more than 166,000 as a couple, then those limits are less.

      If you do make over 6,000 then I would make a trad ira contr and then convert to a roth.

      If you do make over 6,000 I would always talk with a tax advisor on anything that you do, especially when it comes to roths.

28. QUESTION:
    What is there a maximum amount I can contributed to both my Roth IRA and 401k?
    For 2007 I contributed ,000 in my Roth IRA and ,500 in my 401k. Did I exceed the Maxium amount?
    Is there a combined amount that one can contribute to the plans? Or are they seperate?

    • ANSWER:
      You’re fine, you hit the max on both. For 2008 you can put 00 in the Roth.

29. QUESTION:
    Traditional IRAs: What is the maximum one can deposit to their 2008 IRA?
    Traditional IRAs: What is the maximum deposit I can make to my IRA in 2008?

    For TRADITIONAL IRAs (not Roth IRAs), the maximum one can deposit into thier IRA is US,000.00 during year 2007 (exceptions for those over 50).

    Does anyone know what the maximum will be for year 2008 for TRADITIONAL IRAs? I have “heard” but not seen the law that might raise the deposit to US,000.00.

    I have already read the IRS’ website but no info is available there on this subject for 2008 (yet).

    Please, can anyone direct me to a source that might be able to answer my question?

    Intelligent answers only. Thanks.

    • ANSWER:
      Traditional IRA
      This works the opposite of a Roth-IRA. You get a current tax deduction in the year you put money in your IRA. However, every penny you have in your account is taxed when you spend it in retirement.
      Annual contribution limit: ,000 (,000 if age 50 or older)

      Roth-IRA
      Investors put in after-tax dollars that are never taxed again. When you retire, you take out all your money and whatever it has earned tax free.
      Annual contribution limit: ,000

30. QUESTION:
    What is the real difference between an IRA and a Savings’ account?
    What I want is this:

    I wish to retire early, therefore I am willing to save up AS MUCH AS I CAN. E.g., even €2,000 per month. (whereas I seem to understand an IRA only allows a maximum amount of €4,000 YEARLY.) Without the thief issue, I could easily do this by storing cash in my home, you know? I don’t want that account to be blocked so that I can’t take money out of it for years. I’d simply like to put an average of €20,000 per year into it, and have it grow with interest as much as possible throughout the years. There has to be a solution that suits this basically simple intention. What is the best account for me to get and where? Be specific if possible. Thanks!

    • ANSWER:
      In the US, IRA accounts allow people to set aside money without tax consequences. A simple IRA lets you deduct the money you put in, and a Roth IRA says the money will be tax deductible when you take it out. There are also SEP IRA’s, which let you put in up to 15% of your income, I think.

      Storing cash at home means you don’t get interest or tax deductions, and you could lose it if there’s a fire.

      You should look into getting a stock brokerage account and investing. You can withdraw the money at any time, although it’s better to buy and hold.

31. QUESTION:
    What is the combined contribution limit when having both a SEP and SIMPLE IRA?
    Suppose I work for an employer offering a SIMPLE IRA and on the side I have a sole prop business. Can I use the self employment income and set up a SEP. If so, how do I figure the contribution limits?

    Thanks
    Anyone? Please?

    • ANSWER:
      Hi!

      Yes, you can set up a SEP for your sole proprietorship. I have included a link below to IRS Pub 560. The info regarding SEP contributions begins on page 6. If you need more help I can be reached through my profile.

      Hope this h

32. QUESTION:
    What is the advantage of a traditional IRA to just owning stocks and mutual funds?
    Why should I have a vehicle to keep my mutual funds in? They are easily accessible when needed. I will be taxed at both points in time with or without a traditional IRA. The roth is not an option.

    • ANSWER:
      You get a tax deduction this year for your contributions.

      Tax Deffered Gains

      No worry about paying taxes every time you sell a stock. No taxes on dividends either.

      You only pay taxes on distributions after you retire, so you have more cash to reinvest, so your money grows faster.

33. QUESTION:
    Is it smart to use my Roth IRA towards my morgage?
    I have a nice down payment I’m putting on my first house, but wondered would it be smart to add in money from my Roth IRA? What is better in the long run. As of now I am planning on living in this house for a long period of time, but everyone knows that can change.

    • ANSWER:
      I wouldn’t if I were you…

      If you already have a down payment on your house, I’d keep your investments for any unforeseeable need in the future. I understand you want to live in this house for a long time, and you will presumably allow the equity to grow, however with the mortgage industry as bad off as it is now, property values may continue to fall and in 5 years you have something come up and you try to take a HELOC (home equity line of credit) on your house or refinance it, you might find it isn’t worth what you paid for it.

      Keep the IRA safe, it isn’t hurting anyone where it is right now.

      -Em

34. QUESTION:
    What should I know before opening an IRA account?
    What is the difference between an IRA and a savings account? Would I be able to tap into the money saved in my IRA before retirement in order to purchase my first home? Would opening an IRA with a credit union give me any additional benefits that my current bank would not be able to provide?

    • ANSWER:

35. QUESTION:
    How do I go about getting a Roth IRA started?
    I’m 23, married, and interested in opening a roth IRA but I have no idea where to go, what bank to use or what my options are. I’ve done my research and know that this is the type of account I want but haven’t been able to find advice on how to get the ball rolling. Any advice or suggestion would be appreciated =)
    Also, what is the minimum amount to open the account?

    • ANSWER:
      You can open a Roth IRA at any bank or brokerage firm in the country. You could invest the money in a CD or a Mutual Fund. You can think of the Roth IRA as a kind of wrapper around an investment that shields the investment from income taxes.

      The larger brokerage companies will allow you to open your account online. Some accounts have no costs other than the mutual fund management fees. Others charge an annual fee, on top of the management fees, of – or so. A three of the larger mutual fund houses that offer Roth IRAs are:

      Fidelity:

      http://personal.fidelity.com/products/retirement/getstart/open_nofee_ira.shtml.cvsr

      Vanguard:

      https://personal.vanguard.com/us/accounttypes/retirement/ATSStartSavingRetVGIIRAContent.jsp

      T Rowe Price:

      https://www3.troweprice.com/nmf/NMFWeb/pubOpenNewAccount.nmf?path=open&src=iramicro

      If you’d like to read more about Roth IRAs, here is a link to an article on how to start a Roth IRA

      http://www.getrichslowly.org/blog/2007/06/07/how-to-start-a-roth-ira-and-where-to-do-it/

      I hope that helps.

36. QUESTION:
    What is the marginal tax rate on an IRA calculator?
    I have a Roth IRA, and wanted to see how much money would be in the account in 31 years (when I’m 70) if I contribute the maximum amount per year. I was confused by the category “Marginal Tax Rate” because I thought anything I withdraw after age 59 was tax free.

    • ANSWER:
      It is tax free and penalty free from a Roth after 59 1/2 years old.

      They are probably asking your marginal tax rate today for two reasons: 1) so that they can compare your Roth investment with a regular savings account investment in which you would lose some of the interest each year to taxes, and 2) so they can calculate the saver’s credit that you will get in the year of contribution if you quality.

37. QUESTION:
    What is a good investment firm to start an IRA with?
    I want to start an IRA this year but Im unsure what investment firm to go with. I have used Fidelity in the past but had to remove the money. Any suggestions?

    • ANSWER:
      Fidelity is very good but they tend to have a complex fee structure for small investors.
      I recommend the following:

      http://hubpages.com/hub/Invest-in-mutual-funds-simple

38. QUESTION:
    What is the penalty for over withdrawl on an IRA?
    I’m retired and rolled over my 401K to an IRA, but I’ve had to take out over 0,000 in a year. What will be my penalty?

    • ANSWER:
      Assumed that you are over 59 1/2.

      The fact is that you will be taxed on the 0,000 this year rather then over the number of years that you would have drawn down on the IRA. The tax brackets are: 15%, 25%, 28%, 33%, 35%.
      With the 0k you could be in the 28% bracket where as if you withdrew the funds over the next 10 years you may have only been on the 15% bracket. Thus you pay an extra 18% in taxes today

      If you receive social security it too will be taxed up to 85% of it.

      You also may be in alternative minimum tax this year.

      YOU NEED TO SEE a tax advisor/CPA to do some tax planning BEFORE December 31st 2006, to help reduce the amount of taxes you will pay. Spend the money to get the best advice.

39. QUESTION:
    What company is the best to start up a Roth IRA? What are the best mutual funds to invest in?
    I am looking to start up a Roth IRA since I am in a low tax bracket, and I am looking to invest in no load mutual funds, long-term. I am looking for monthly compounded interest and no fees.

    • ANSWER:
      I’m glad you are doing your homework. I would start with the Royce mutual funds.
      Invest in the Royce Low Price Stock Fund symbol RYLPX. I have owned this fund for years and I am glad I did. The Fund manager Whitney George has been with Royce for 18 years and has done a great job year in and year out.

40. QUESTION:
    What is the difference between a mutual fund and an IRA?
    I’m saving for the long run……..if I put the money in a mutual fund can I make withdrawels ( if necessary ) without restrictions or financial penalties?…….but if I put it in an IRA, i can’t touch until 59 1/2 years of age?

    • ANSWER:
      Don’t buy mutual funds for the long run. They’re not good investments. The problem is the fees that are involved. A mutual fund is a pool of money from a number of investors which is then invested and managed by a fund manager and usually his/her employees. This inherently means you get lower returns than if you bought stocks.

      The reason is, the fund manager and employees all have to get paid, which cuts into your earnings. This makes them less attractive, so they often pay advisers to recommend them. This further cuts into your earnings. As a result, stocks are a much smarter option. The IRA isn’t a bad idea, and there are different kinds of IRAs you can invest in.

41. QUESTION:
    What is the benefit of rolling a 401k into a IRA?
    I have a 401k from a previous employer and I’ve understood that rolling it over into a IRA is a good idea, but I’m not totally clear why. Is because you face more penalities the longer the account remains open? When I contacted the company managing my account, they said I could leave it open for the life of the account and that rates where competitive, which I’m certain is to their benefit, but I thought it was a question worth asking. Any help would be greatly appreciated.

    • ANSWER:
      I have a free downloadable book on retirement investing, available in PDF format from my website. Click on my profile and read my info to get the site. Just in case you were interested.

      Now, to answer your question, let me pick an exerpt from my book:

      “There is a type of account, called a Rollover IRA, which is considered the “universal recipient” for any before-tax money. (Actually, a Rollover IRA is a type of Traditional IRA. We just give it this fancy name to denote what most people use it for.) The drawback is that you cannot contribute new money to a Rollover IRA. However, you can consolidate all your before-tax accounts (from previous employers) into one Rollover IRA with almost any investment firm. You now have free reign over how you retirement money is invested. You are no longer bound by the limitations of your former employer’s plan. And if you become dissatisfied with your Rollover IRA, guess what? You can roll that to another Rollover IRA with another investment firm. Just keep rolling, and you pay no taxes.”

      “I highly recommend rolling your money from past employer accounts into a Rollover IRA or your current employer’s plan. Do not let that money sit with your old employer. In order to release that money, you will need approval from human resources. This could be tricky if you left years ago. Human resources at your old job may look at your paper work and say, “who is this?” To avoid hassles down the road, please rollover money soon after you sever employment. Just think, once you get money into a Rollover IRA, you no longer need human resource’s permission.”

      “Any money from previous employer plans should be rolled over to your current employer’s plan or a Rollover IRA. Personally, I like the Rollover IRA since you can choose whatever firm you want, as well as the option to convert it to a Roth IRA. You will eventually have all your money in an IRA, anyway. Very few people keep their money in their old job’s plan while in retirement. Do you already have a Rollover IRA, but with high-cost funds? If so, use a direct rollover to get that money into a firm with low-costs funds like Fidelity, Vanguard, or T. Rowe Price.”

      The beauty of a rollover IRA is that you can pick an IRA with almost any firm you want and can get your money into low-cost funds. Also, you have the option of eventually converting it to a Roth IRA, if you are willing to pay the taxes this year.

      I don’t think you would “face more penalties” based on the length of time you have the account open. If you are referring to tax penalties, realize that you cannot withdraw money before age 60 in either a 401(k) or an IRA without incuring a 10% tax penalty.

      If you do decide to rollover, please use a Direct Rollover. With direct rollovers, the provider of your old account sends the check directly to the provider of your new account. The check is made out to the trustee for the new provider. With direct rollovers you never see the check and are not subject to the 60-day rule or the mandatory 20% withholding. If something goes wrong with the transfer, the money remains with the old account and you can try again. Yes, it’s frustrating if this happens, but at least you don’t run the risk of incurring a taxable distribution. Keep in mind that direct rollovers are not always smooth. Mine took 3 months. You may need to moderate the process by making calls to both providers. Some providers hassle you because they don’t want to give up your money. Despite any hassles, a direct rollover is far better than taking all your money as a taxable distribution.

      Hope this helps some. Download my free book if you want more help. Chapter 24 addressed the issues of retirement accounts.

42. QUESTION:
    Do you have to contribute to an IRA in order to invest in mutual funds?
    How does it work? What if I wanted to invest in a mutual fund separate from an IRA? Is there a maximum contribution for investing in mutual funds like there is when you invest in an IRA?

    • ANSWER:
      An IRA is just a designation for any type of account. You can invest in almost any type of instrument and call it an “IRA” (for example, you can invest in real estate and call it an IRA–as long as it complies with the rules for contributions and distributions that come with an IRA).

      IRAs have tax deferment as their advantage. Theoretically you will be in a lower tax bracket when you begin to withdraw the funds, thus the tax on the income will be less than if you had them in a “regular” investment account..

      So… mutual funds are just a type of investment instruments available for IRA purchases, but you can invest in them for other purposes and without limit.

43. QUESTION:
    When people get divorced what is it called when the IRA funds are transferred to the other person?
    Not a personal question – mine never are.

    Ex: The wife has no IRA accounts or ROTHs.
    And the divorce states that she gets half.
    What is this procedure called.

    Trying to answer another question.
    She gets half into her own IRA account.

    • ANSWER:
      The Federal government allows couples to split an IRA account, with no tax penalty, only under two conditions. First, the transfer has to be a part of the formal divorce decree. In other words, the split of an IRA account has been court-ordered. Secondly, you must transfer the funds from the one IRA account directly into the other partner’s IRA account. You cannot turn the funds into cash during the transfer or there will be a 10 percent tax penalty and income taxes due on the “cash out” amount charged to the original IRA account holder.

44. QUESTION:
    What company is secure and charges the least fees for an IRA?
    The company I have an IRA R/O with has informed me that my financial planner will not longer handle my account with them. They said they are going to change my IRA to a custodial account (?) and charge me fees. I don’t yet know how much. What are customary fees for an IRA and what company(s) are the most stable right now for an IRA if I decide to move it to another company?

    • ANSWER:
      well normally the fees are very small == edward jones has a fee of 30 dollars a year — but all banks are free but you are limited on your type of investments!!!

45. QUESTION:
    Does Participating in a Retirement Program Prevent You from Deducting an IRA Contribution?
    Years ago, a person who participated in a retirement program could not deduct an IRA contribution.

    Is that still the case? What kind of retirement program is relevant to this situation (defined benefit, defined contribution, 401k)?

    • ANSWER:
      Yes, this is still the case…

      Am I considered covered by an employer sponsored retirement plan for the year if I do not participate in the plan or if I did not work long enough to be vested?

      The answer to this question depends on your type of retirement plan. Generally, if your employer’s plan has a separate account for each employee, it is a defined contribution plan. If any amount was contributed or allocated by you or your employer to your account, you are considered covered. It does not matter if you have worked long enough to be vested.

      In the other type of plan, a defined benefit plan, the employer must make enough contributions (together with earnings) to provide the retirement benefit promised in the retirement plan. In this type of plan, if you meet the minimum age and years of service requirements to participate in your employer’s plan, you are considered covered. It does not matter if you are vested.

46. QUESTION:
    How can I reduce the tax I have to pay for the dividends I received in 2006 from stocks?Catch up on IRA?
    Instead of re-investing the dividends in the stock I have, I requested and got them to pay me the dividends to supplement my income. I took early retirement and worked part-time in 2006. I did not put any money into IRA for 2006. In my parttime job, I had put ~K into a 401K account. My total AGI for 2006 is ~K. My preliminary tax return showed that I have to pay taxes for the dividends that I did not pay taxes in 2006. I have to pay a penalty also. In order for me to reduce taxes, can I still put money into IRA for 2006? What is the maximum amount for 55 year old and above? Are there other things I can do to reduce the taxes and hence the penalty I have to pay Uncle Sam?

    • ANSWER:
      By the way, if this stock was held in a non-retirement account, you would have had to pay tax on the dividends every year, reinvested or not.

      Yes, you have until 4/17 to get up to 00 into a traditional IRA to reduce your taxes. Since you were covered by a retirement plan (the 401K), it will not be deductible if you are single. If you are married filing jointly, you would have a deduction. See the work sheet on page 22 of the instructions for form 1040.

47. QUESTION:
    What type of Gold American Eagle coins are best to put into a gold IRA?
    I have decided to buy a gold IRA, but there is conflicting information given by different companies.

    Some say to put Gold “proof” American Eagles in it, because they are more valuable than non-proof American Eagles. Others say that it is not worth it, because the coins, when in an IRA, are only valued based on the value of the metal itself, and not on the collectible value, so this is just a way for the salesman to make a better commission from you.

    Does anyone know the real answer to this question?

    • ANSWER:
      The fees can be crazy on holding physical gold in an IRA, and many companies are no more than elaborate scams. If you want to own gold, buy the GLD ETF. GLD is the worlds second largest holder of physical gold, and its much much much cheaper to buy that than physical gold. If you still want physical gold buy bullion. Bullion does not have the collector value that coins have and as such your value won’t fluctuate with the collector market, just the gold and currency markets. If you’re not stuck on buying gold in your IRA, take a look at the bullion offered on ebay, thats a really cheap way to own physical gold and its easy to sell for cheap on ebay. I’ve done this myself, just be selective with what gold you buy, make sure its in a sealed pack and comes with a certificate from a reputable mine like Pamp Suisse.

48. QUESTION:
    Is there a penalty if I take out money from my Roth IRA but only what I put in, not my earnings?
    I think I might have to take some money out of my Roth IRA because of a large tax bill. If I only take out what I’ve contributed, how much will I be taxed? For example, I’ve contributed over 20k of my own money but might need 5k. How much tax will I pay on that 5k?

    • ANSWER:
      There is no penalty if it has been 5 years since the contribution. But it is your contribution amount only… Not appreciation.

      Read the link… It will answer all of your questions.

49. QUESTION:
    What are the tax implications for Canadians for 401k and ROTH IRA at retirement?
    How do taxes work when Canadians who may have worked in the US withdraw money from their 401k or ROTH IRAs at retirement? Someone told me that a 401k can be withdrawn (and taxed in the US), but when the money is taken to Canada it will not be additionally taxed. However, the ROTH IRA would be taxed as new income in Canada. Is this true? If so, this defeats the whole purpose of the tax free growth provided by the ROTH IRA.

    I am currently working in the US but am a Canadian Citizen and hence dont really know where i will be come retirement (40 years away) so I am not sure as to where I should invest. I am trying to collect details so I can make an informed decision.

    Thanks
    Mathew, I know how the taxes work if you remain in the US. I need to find how they work if you plan to take the money to Canada. Of course I dont know how things will work in 40 years, but how do they work now?

    • ANSWER:
      For US taxes the 401 k disbursements will be taxed at your tax rate when you retire and the Roth disbursements will be tax free. Who knows what the Canadian tax rules will be in 40 years.

50. QUESTION:
    In my situation, should I start a traditional IRA?
    I am a college student and I have a Federal AGI of ~7200for 2007.
    Because I don’t plan on having very much income added to the fact I plan on having a good amount of capital losses, would it be a good idea to start a traditional IRA to shelter 1900 (what I’m being charged taxes on) from fed taxes? Then, next year, I would roll that traditional IRA over into a Roth when I don’t have an AGI anywhere near 5300.
    Is this feasible? This won’t be too hard will it?

    • ANSWER:
      Hi
      If you have incurred capital losses in the same year as you have realized capital gains, you can offset the gains against the losses to reduce your taxable income. If the capital losses exceed the gains, up to ,000 of the excess capital losses may be deducted against ordinary income each year. A few things to remember about IRAs: you can contribute into it only if you have an earned income. In 2008 you can contribute max 00 or 100% of your earned income, whichever is less, and you can start withdrawing without any tax penalties at age 59.5. Yes, it’s a good idea to start your Traditional IRA and deduct the contributions on your tax return, and convert it to Roth IRA the next year when you are in a lower tax bracket. Remember that you cannot deduct Roth IRA contributions on your tax return. It’s great to have Roth IRA or Traditional IRA; however, the most important thing about investing for a retirement is to contribute regularly, and to do so you must have an earned income.