Individual Retirement Accounts
Why an IRA?
To support yourself in those golden years when you no longer expect to be working full time, income is essential. Putting aside money for retirement increasingly is becoming our personal responsibility and IRAs enable us to do so. This informative guide can help you understand retirement account options, and it can help you determine how much money you might need to save.
Even though your union benefits may support you in those golden years of retirement, retirement accounts can also be used for such things as:*
- Buying a house
- Educational Expenses
As you evaluate your needs in retirement, you're up against two obstacles:
1) Inflation can reduce your purchasing power, and
2) the life expectancy of Americans is expected to continue to increase, resulting in longer retirements.
*Retirement account distributions are subject to certain rules, limitations and restrictions, including possible IRS penalties and taxes.
Can We Make it in Retirement?
According to the Employee Benefit Research Institute, only five percent of U.S. workers "save enough money to live comfortably throughout retirement."
They may be right. Among those confident regarding their retirement, the majority have either not started saving or are saving without knowing their needs.*
It is important to understand what you can expect at retirement and to estimate your post-retirement needs. A good place to start is to request a copy of your Social Security Statement. This document not only shows you what you've paid into the system but it will also give you an estimate of what you might expect to receive in monthly benefits. It can be obtained by calling (800) 772-1213, visiting your local Social Security office, or visiting online at www.ssa.gov.
Another good source of information is your trade union. Contact their benefits administration department and request information on your pension plan.
*Employee Benefit Research Institute Issue Briefs Number 181, January 1997.
The traditional IRA is a long-term savings vehicle designed to offer Americans the ability to build a tax-advantaged nest egg. Up to age 70½, all wage earners and their spouses may contribute up to $5,000 ($6,000 if you are age 50 or older) per person, per year. Earnings in these accounts will grow tax-deferred until they are withdrawn at retirement. In addition, many individuals are eligible for a tax deduction on part or all of their contributions.
A product of the Taxpayer Relief Act of 1997, Roth IRAs became available to investors at the beginning of 1998. And yes, for many it does offer some potential relief, especially down the road when participants begin withdrawing money from their accounts. Here is how it works:
If you are employed, regardless of age, you and your spouse can each make up to a $5,000 ($6,000 if you are age 50 or older) contribution per year, subject to income limits.
- Contributions are not tax deductible;
- Earnings on the accounts, if left invested for five years, are tax-free;
- Contributions can be withdrawn tax-free and penalty-free at any time.
This information should not be relied upon as tax advice.