How does an IRA work?
A Individual Retirement Account (IRA) allows you to invest in many different types of investment vehicles such as stocks, bonds, mutual funds, fixed income products, etc. Each type of IRA has its own unique advantages and guidelines regarding withdraws, contributions, taxes, etc. Traditional IRA – Contributions are generally tax-deductible and distributions are generally taxable. Roth IRA – Contributions are not tax-deductible, but distributions can generally be withdrawn tax-free. To learn more about IRA’s go to www.scottrade.com. Once at the home page go to the “Retirement Center” tab and click on it. When the next page comes up click on “Enter the IRA Center”.
Any qualified deposit into a Traditional IRA may be deducted from your gross income even if you do not itemize any other deductions. You pay neither federal nor state income taxes on these monies or on your dividends earned while they are left on deposit. You may make contributions to a Traditional IRA up to, but not for the year you reach 70. At that time distributions from the IRA must begin. There is no age limitation for contributions to a Roth IRA. Deposits into these IRAs are not deductible. Future withdrawals of the deposits and earnings are tax-free and penalty free if certain age and time limitations are met. Deposits to an Education IRA can be made on behalf of the designated beneficiary under the age of 18. Deposits into these IRAs are not deductible. Future withdrawals of the deposits and earnings are tax-free and penalty free if certain limitations are met. An IRA may be established and deposits made at any time.
A. You invest money in an IRA, up to the amounts allowable under the tax law. These investments are termed “contributions.” In many instances an income tax deduction is available for the tax year for which the funds are contributed. The contributions, as well as the earnings and gains from these contributions, accumulate tax-free until you withdraw the money from the account. You therefore enjoy the ability to generate additional earnings, unreduced by taxes on these earnings, each year the funds remain within the IRA. The withdrawals of the funds from the IRA are termed “distributions.” Distributions are subject to income taxation, generally in the year in which you receive them. (Remember that in most cases you received an income tax deduction when you contributed the money to the IRA.) As with most things involving the government, the rules for distributions are more complicated than they need to be.
An IRA offers you a tax-advantaged way to set aside money for retirement. It’s a personal savings plan in the form of a custodial account or trust set up for the exclusive benefit of you or your beneficiaries. An IRA is not an investment in itself; rather, it’s a type of account that holds the investments you select. You can include different kinds of investments in a Vanguard IRA®. In addition to a wide variety of Vanguard® funds suitable for retirement investing, you can invest in stocks, bonds, and other companies’ funds.
You invest money in an IRA, up to the amounts allowable under the tax law. These investments are termed “contributions.” In many instances an income tax deduction is available for the tax year for which the funds are contributed. The contributions, as well as the earnings and gains from these contributions, accumulate tax-free until you withdraw the money from the account. You therefore enjoy the ability to generate additional earnings, unreduced by taxes on these earnings, each year the funds remain within the IRA. The withdrawals of the funds from the IRA are termed “distributions.” Distributions are subject to income taxation, generally in the year in which you receive them. (Remember that in most cases you received an income tax deduction when you contributed the money to the IRA.) As with most things involving the government, the rules for distributions are more complicated than they need to be.
