IRA’s: The Differences You Should Know © 2008

By: Colleen K. Rich

Article Word Count: 596 In Income Retirement Accounts or (IRA), created in 1974, is a trust account or a savings account that individuals use to help save up funds for future retirement. After all who is going to take care of and pay for all those ‘baby-boomers’? Certainly one cannot expect the government or next generations to carry this burden. So the plan was to help them, help themselves. These accounts can be either tax-deferred or tax-deductible depending on which type an individual chooses. The maximum contribution for any IRA is $5,000 per year or 100% of workers compensation which ever is lesser. Those 50 years of age and older can invest an extra $1,000 per year. The Traditional Income Retirement Accounts or (IRAs), is a tax-deductible account. This means that individuals do not have to pay taxes on contributions until funds are withdrawn from the account. This was great if one expected to be in a lower tax bracket during retirement but what about those who would be in a higher tax bracket? We'll get to that in a minute, but first there are some rules. An individual can only contribute to this form of IRA until the age of 72 1/2, then withdrawals must begin or large penalties will occur (1/2 the amount that should have been taken out). In 1997 a Delaware legislative Senator, William Roth, introduced the present day Roth Income Retirement Account or ‘Roth IRA’, into play. The Roth IRA is not a tax-deductible account so the individual pays taxes on contributions now, but the funds are tax-free when they are pulled out of the account during retirement. This form of IRA is highly sought after for those individuals who expect to be in a higher tax bracket at retirement, because they would be paying the lesser tax now. There are also lighter restrictions for individuals with a Roth IRA who withdrawal funds before the age of 59 1/2 years of age. Funds that have not been converted from a traditional IRA can be withdrawn on first-in, first-out bases with no penalties. So this means the oldest investments with the highest appreciation, are the first to get withdrawn. Funds converted from the traditional IRA can also be withdrawn after 5 years on first-in, first-out bases. Another great benefit that you get from Roth IRAs that you do not get from traditional IRAs, is the ability to use your contributions towards real estate investing. Conventional forms of investing are presently paying 4%-9% interest, while real estate investing is profiting 15%-30% or more. And self-directed Roth IRAs have even better control for the owner/holder of the IRA account. For more information on self-directed Roth IRAs, look for more articles from this author online. Colleen K Rich is a real estate investor that partners with both private individuals and lending corporations to finance investment properties. Colleen also works with investment groups that offer services for IRA’s, 401K’s, etc., http://www.Retirement-and-Planning.com so that people all over the country may be educated and helped along in the process of using their IRA’s for investing in real estate. The web site has valuable information and an E-book that can be sent to you upon request. Colleen K Rich can be reached at crich.invest@yahoo.com for further questions on IRA, Private Money, 401(K), or other investing. You can find more articles related to this topic and author online. To find out more on how the power of leverage can work for you visit: http://www.IRA-and-Investing.com .