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An IRA Is a Powerful Retirement Planning Tool

The importance of sound financial planning for retirement cannot be overstated. It’s critical because Social Security and pensions may not provide you with enough income to support your lifestyle when you retire.

How much will be enough? As a rule-of-thumb, estimate that when you retire you will need about 70% of what you spend before retirement. That’s a substantial sum, especially when you consider that most of us hope to be retired for 20 years or more.

IRAs Have Tax Advantages

The tax advantages offered by Individual Retirement Accounts, IRAs, can make a big difference in how well prepared you are to finance a comfortable retirement. Your IRA earnings are tax-free or tax-deferred, which means that federal and state taxes are not deducted. With more tax-free income, your money can grow faster. You can contribute to your IRA every year that you earn income, and you choose where it should be invested.

• Traditional IRAs are tax deferred. Contributions and earnings are not taxed until they are withdrawn
• Roth IRAs go one better. Contributions are made with after-tax dollars, but earnings are tax-free: no tax is owed on earnings as they accumulate or when money is withdrawn.

IRAs offer greater flexibility and more valuable benefits than in the past. Because investing in an IRA is so important to your financial future, and somewhat complicated, we suggest that you also consult your financial advisor and a tax professional before you make a decision. Detailed information can be found in the IRA Information Booklet.

Take Advantage of Favorable Tax Laws on Roth IRAs

Roth IRAs can be a great way to save for retirement.  Earnings grow tax-deferred and withdrawals are tax-free once qualifications are met.  Unlike traditional IRAs, Roth IRAs require no minimum distributions, which can make them a wonderful vehicle for passing wealth to future generations.  Another Roth advantage? Roth withdrawals are not reportable income so they won't affect your adjusted gross income (AGI) during retirement.

Beginning in 2010, anyone, regardless of income or filing status, will be able to convert money from a Traditional IRA to a Roth IRA.

Any Investor May Contribute to a Traditional IRA

Many investors do not realize that anyone who has not yet attained the age of 70 1/2, regardless of income, may contribute to a Traditional IRA if they have earned income. (For year 2010, the maximum IRA contribution limit is $5,000 for investors under age 50, and $6,000 for those age 50 and older).  The contributions will be non-deductible if your income is over a certain limit and you participate in an employee-sponsored plan.

If your contributions are non-deductible, they will not be taxed at the time of conversion. Withdrawals from an IRA prior to age 59 1/2 may be subject to a 10% tax penalty.

The new tax law enables you to spread the tax bill on a conversion over 2011 and 2012 if you make the conversion during tax year 2010.

IRA Conversion

If you currently have a Traditional IRA and would like to convert to a Roth IRA, please download the IRA Application.

Deciding Which IRA Is Right For You

This table gives a quick comparison that may be helpful. We suggest that you consult with a qualified financial advisor and/or a tax professional to help you make your decision. Your tax advisor can also inform you of important state tax consequences to consider.