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    WISER’s Financial Literacy Series: “I’m Ready to Save, Now What?”- IRAs

    Friday, April 22nd, 2011

    Whether you have $25 or $2,500 to spare, there are smart ways to invest your money to build your retirement savings. WISER is highlighting different strategies for saving, depending on your financial situation, age and personal feelings about risk taking. Use this brief to brush up on your financial knowledge to make the most of your money.

    Investigating IRAs:


    If your employer does not offer a pension plan or 401(k) type plan, it is especially important that you save for retirement in other ways. One good option is to open an Individual Retirement Account (a.k.a. IRA).

    There are two main types of IRA’s: Traditional IRAs and Roth IRAs which provide straightforward avenues through which to save money long-term.  You can open an IRA at many financial institutions, including banks, mutual fund companies and brokerage firms.  Look for a large, “no-load” mutual fund company, which means that it will not charge commission for services. You can ask for free information on IRA’s from your financial institution of choice to help you choose which IRA fits your unique situation.  Here are some basics to get you started on your decision:

    IRA Basics

    When you open a Traditional or Roth IRA, you choose the combination of investments you want to incorporate from a menu of stocks, mutual funds, CD’s, money market investments etc. In 2011, you can contribute up to $5,000 to your IRA; $6,000 if you are 50 years or older. Keep in mind that you can contribute less than the maximum amount also, every bit helps. The contribution year for your IRA starts on January 2 and ends on April 15 of the next year.

    In general, you will be penalized if you withdraw from your IRA before you reach 59 ½ years of age.  A few exceptions to this rule include: withdrawals for college tuition, certain medical expenses and first time home purchases.

    Traditional vs. Roth IRA- What You Need to Know:

    A significant difference between Traditional and Roth IRAs is how they deal with taxes.  The funds you contribute to your Traditional IRA are tax-deferred, so you pay nothing now but must pay taxes when you withdraw money at retirement. Conversely, you must pay taxes on your Roth IRA contributions, but when you withdraw funds, you can do so tax free.

    A potential perk of having a Roth IRA is that you are not forced to take minimum distributions in retirement; you can leave it untouched if you prefer.  This is important to note because your IRA tax benefits can continue even after you die for the person that inherits your IRA. (**This is the person you name as your beneficiary in the adoption agreement when you first open your IRA.)

    Check out WISER’s Fact Sheets on Traditional IRAs and Roth IRAs for specific information on contribution and deduction income limits.

    IRAs are an important piece of retirement security, especially if you do not have access to an employer-sponsored retirement plan.  Make sure to consider your financial situation and speak with someone at your preferred financial institution about using an IRA to invest in your retirement.

    Posted in Finanical Literacy Month, Roth IRA, Traditional IRA | Comments »

    Government Gives Retirement Funds Room to Recover

    Monday, February 9th, 2009

    A new law may make it easier for some Americans to allow their retirement funds to recoup losses. That’s because mandatory withdrawals from certain retirement accounts have been waived for tax year 2009.

    Usually, anyone age 70 1/2 or older is required to withdraw funds from their retirement plans each year, even if the money isn’t needed. These plans include 401(k)s, 403(b)s, some 457(b)s as well as IRAs and IRA-based plans such as Simple IRAs and SEPs. However, The Worker, Retiree and Employer Recovery Act of 2008 waives the requirement to withdraw funds in 2009. To learn more, visit www.irs.gov/pub/irs-drop/n-09-09.pdf.

    [Government Gives Retirement Funds Room to Recover] IRS.gov

    Posted in 401K, Roth IRA, Traditional IRA | Comments »

    Financial Priority #3: Saving for Your Retirement

    Tuesday, August 19th, 2008

    Of course, retirement seems a long way off for someone just starting out in their career, but creating a long-term retirement savings strategy and then actually starting it is one of the smartest decisions you can make as a young person. After making sure you’ve got health insurance coverage and setting up a strategy to pay off high-interest debt, planning for your retirement is an essential step towards a secure retirement.

    Compound interest on money you save in an Individual Retirement Account (IRA) or other kind of retirement savings vehicle will similar grow over time at an impressive pace. Take advantage of that compound growth by investing in your 20s rather than waiting until you’re closer to retirement and have less time for your money to grow!

    So, what can you do now to be secure later?

    • If your employer sponsors a retirement plan, and especially if your employer will match any contribution you make to the fund, that is absolutely your best option. Not signing up for a plan that includes employer contributions is like leaving money on the table!
    • If the employer-sponsored option is not available to you, you can start a Roth IRA for yourself with a relatively small amount of savings. For example, it’s possible to open an account with a leading investment firm if you have $1000, but you will be charged a $10 annual fee. When your account balance reaches $5000 the annual fee disappears so it may make sense for you to save your money in a bank account (with no annual fee) until you reach the $5000 threshold. Or, if you would be too tempted to make withdrawals from a personal savings account, go ahead and start a Roth IRA with less than $5000 and the $10 annual fee will be an an incentive to contribute as much as you can afford.
    • As was discussed is an earlier post, Roth IRAs are the best fit if you are currently in a low tax bracket but expect, or hope, to be in a higher-earning tax bracket by the time you are ready to retire. This is because Roth IRAs, as opposed to traditional IRAs, are set up such that you contribute after-tax income to the account (meaning, the amount of money you chose to contribute to a Roth IRA is not tax-exempt) but then don’t pay any taxes on the money you withdraw when you reach age 59½. Since taxes are generally expected to rise over time, this scheme essentially allows to you spend more of the retirement money you save on yourself rather than to pay taxes.
    • Roth IRAs are also a valuable resource for young people because they allow you to start saving for your old age, but you don’t necessarily have to wait until your old age to use some of that money. For example, starting five years after you opened the account, you’re allowed to withdraw contributions from your Roth IRA (note: you can’t take out interest earned, only the money you originally deposited) to pay for expenses like certain necessary medical costs, to buy your first home, and to pay for higher education.

    Follow this three part guide to economic security and get your financial priorities straight: first, your health; next, pay off debt so you can start to save; and finally, start saving for retirement in your 20s so you can reap the benefits of investing early! Look for more helpful financial advice for women of all ages from WISER in the future!

    Posted in Investing, Retirement, Roth IRA, Traditional IRA | Comments »

    WISER

    About Us

    WISER is a nonprofit organization that works to help women, educators and policymakers understand the important issues surrounding women's retirement income. WISER creates a variety of consumer publications including fact sheets, booklets and a quarterly newsletter that explain in easy-to-understand language the complex issues surrounding Social Security, divorce, pay equity, pensions, savings and investments, banking, home-ownership, long-term care and disability insurance.

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