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Whether you
are saving for retirement, a new home, or your child's college education,
your financial goals are as individual as you are. We believe that
a sound investment program will help you reach your personal financial
objectives. That is why we have provided this section - to help
you understand some of the investment options and possible tax advantages
available to you and help you make the most appropriate choices
for your situation. This information is not intended to provide
advice about your investment decisions. We always recommend that
you speak to a professional advisor.
When
Should I Invest in an IRA?
What
is the Difference Between a Traditional IRA and a Roth IRA?
Which
IRA is Right For Me?
What
are My Options Regarding Investing for a Minor?
When
Should I Invest in an IRA?
As a tax-deferred investment, an IRA is a good supplement to most
retirement plans. Other tax-deferred investments may be a better
deal, however. First participate in your company's 401(k) or 403(b),
which allow larger contributions and often have a company match.
Some plans also allow you to borrow from the account. SEP/IRAs are
usually better for the self-employed because they allow larger contributions
as well.
An ideal candidate
for an IRA is someone who doesn't have a company retirement plan
and whose earnings fall below the IRA ceiling. If your earnings
are too high, you can still invest in an IRA, although your contribution
may not be deductible.
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What
is the Difference Between a Traditional IRA and a Roth IRA?
With a Traditional IRA, an individual can contribute up to $2,000
per year and may be able to deduct the contribution from taxable
income, reducing current income taxes. Taxes on investment growth
and dividends are deferred until the money is withdrawn. Withdrawals
are taxed as additional ordinary income when received. Nondeductible
contributions, if any, are withdrawn tax-free. Withdrawals before
age 59 1/2 are assessed a 10% penalty in addition to income tax,
unless an exception applies.
With a Roth
IRA, the contribution limits are essentially the same as Traditional
IRAs, but there is no tax deduction for contributions. All dividends
and investment growth in the account are tax-free. Most importantly
with a Roth IRA: there is no income tax on qualified withdrawals
from your Roth IRA. Additionally, unlike a Traditional IRA, there
is no rule against making contributions to Roth IRAs after turning
age 70 1/2, and there are no requirements that you begin making
minimum withdrawals at that age.
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Is
a Roth or a Traditional IRA Right For Me?
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What
are My Options Regarding Investing for a Minor?
When establishing investment accounts for youngsters, consider carefully
how you want the account registered. If you choose to have the account
in your own name, you will be responsible for taxes on the account.
The good thing is that you also retain complete control over the
account for as long as you want.
An alternative
is to set up the account as a Uniform Gift To Minors Account (UGMA),
called the Uniform Transfers to Minors Act (UTMA) in some states.
Funds in the account are in the minor's name and social security
number and are considered to be owned by the minor. Dividends paid
on the account are taxable, most likely at a preferred tax rate.
The adult custodian is responsible for the account until the minor
reaches the age of majority. Any withdrawals from the account are
payable to the custodian on the minor's behalf until that time.
However, once the youth has reached the age of majority, which is
18 in many states, control of the account reverts to the child to
do with as he or she sees fit. This is the downside of setting up
an UGMA. Parental control is lost at the age of majority. Another
consideration is that college financial aid decisions could be impacted
if a child has sizable assets in an UGMA. It is important to understand
the pluses and minuses of UGMAs before registering the investments
in that form.
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