IRA account

[Maggieddd]

Hi,

I am trying to figure out IRA account. My husband just went to the bank and opened IRA account without any research. He is self employed and he was told to open IRA account. So, now I am trying to fix that, but I don't know anything about it. Should I go and find the best interest rates on IRA accounts, or should he do something else? What should I do first? What's the best option for a self imployed individual?

Please helo, I am clueless.

Thanks

 

[Jarhead*]

Hi,

I am trying to figure out IRA account.  My husband just went to the bank and opened IRA account without any research.  He is self employed and he was told to open IRA account.  So, now I am trying to fix that, but I don't know anything about it.  Should I go and find the best interest rates on IRA accounts, or should he do something else?  What should I do first? What's the best option for a self imployed individual?

Please helo, I am clueless.

Thanks

Maggieddd:
First off, relax.
Secondly, my guess is the bank probably placed it in a CD.
Thirdly, if that is what has happened, it may not be such a bad place to put some of your funds.

Congratulations for starting out an investment program for your future.
You are going to have to educate yourselves, and my guess is you have plenty of time to do so.

An IRA is an umbrella that allows funds that are placed in same to allow the funds to accumulate, tax deferred.
In other words, IRA is not an investment. The investment can be mut. Funds, CD's, Bonds, etc. placed in the IRA.

Do yourself a favor, and go the library, and check out some books that will explain basic investing for a start.

Regards, Jarhead

 

[JWR1945]

Consider your investment objectives.

Your IRA does not have to be with a bank. It can be with a stock broker or a mutual fund. A stock broker can buy bank-type investments such as CDs from anywhere in the nation.

Have fun.

John R.

 

[Marshac]

What's the best option for a self imployed individual?

My guess would be a SEP-IRA since it would allow you to contribute much more than the $3000 ('04) limit imposed on a regular IRA account.

While I applaud your husband for taking the first step and opening an account, i'm not sure that a bank will provide the best rate of return possible. Looking at the IRA options provided by my bank, they offer "retirement CDs" which pay out only 4.5% on a 10 year CD. If you consider that inflation is around 3.5%, you're only gaining about 1% per year.

As mentioned by ex-Jar and JWR1945, you might investigate some of your other IRA options. Calling up Vanguard and discussing some of their fund options might be a good place to start, as well as doing a bit of reading on investing.

Vanguard has a section on their website full of information about retirement planning, and investing.

http://flagship4.vanguard.com/web/planret/PTRetireCenterOV.html?Entry=spotlighton04

Good luck, and keep up those contributions, they WILL pay off.

 

[brewer12345]

It appears to me that the best option for a self-employed person is the new solo-401k. Among others, Fidelity can help you with this.

 

[Adventuregirl]

Another RE savings question....What is the best strategy for retirement saving and investing if the company you work for doesn't offer a 401K? You are not self-employed but the 401K option isn't available to you either....Other than the 3K allowed into an IRA, are there any other pre-tax options? If not, what are the best post-tax options?
Thanks!
Adventuregirl

 

[Marshac]

Here is a good chart that shows the various options:

http://www.401khelpcenter.com/pdf/retirement_plan_comparison.pdf

If any of the terms on the chart are confusing, it would probably be best to consult a professional who can take the time to ask you questions and better understand your exact situation.... never base major decisions on advice given by strangers in an internet forum, especially anonymous 24 year olds.

I will say though, the folks on here are some of the best I have ever found.... you're my heros guys and gals (looking at you Martha)

 

[Hyperborea]

Another RE savings question....What is the best strategy for retirement saving and investing if the company you work for doesn't offer a 401K? You are not self-employed but the 401K option isn't available to you either....Other than the 3K allowed into an IRA, are there any other pre-tax options? If not, what are the best post-tax options?

The contribution amount is now $4K for 2005. There is also a limit of $150K AGI (adjusted gross income) to be eligible for a tax deductible IRA. If you make more than this you can still contribute but the amount is not tax deductible. Choosing between the Roth and Regular IRA really depends on how you picture your taxes changing between now and retirement and how long you have until you'll be taking the money out.

Beyond that as an employee wtih no side business your best bet is tax efficient mutual funds such as available at Vanguard. Which ones to use will depend on what allocation you want. I would suggest choosing your allocation before worrying about the taxation issues. Let the taxation issues guide you as to the specific funds within an asset class to choose, where to put them (IRA vs. taxable account), and maybe jiggling the percentages around a little. However, as the old saying goes, "don't let the tax tail wag the investment dog".

You might hear of using annuities or other insurance products for retirement but these make little sense for most people. If you are making $250K or more a year and fit some other criteria then these might make sense for you. If so, you'll have the bucks to hire the advisor to guide you in those issues otherwise don't bother.

 

[retire@40]

The contribution amount is now $4K for 2005.  There is also a limit of $150K AGI (adjusted gross income) to be eligible for a tax deductible IRA.  If you make more than this you can still contribute but the amount is not tax deductible.

I thought the limit was $160K with partial deductions between $150K and $160K for married taxpayers and lesser limits for single taxpayers?

 

[Hyperborea]

I thought the limit was $160K with partial deductions between $150K and $160K for married taxpayers and lesser limits for single taxpayers?

You're right - I should have been more explicit.  The $150K AGI is the point at which you begin to lose the deductibility and $160K AGI is the point at which it is gone.  Between those points there is a proportionate phaseout (i.e. at $155K you can only deduct up to half of the allowed amount or $2K of the IRA contributions).

 

[gindie]

Clarification regarding deductions for Traditional IRA contributions (source: IRS Publication 590, page 13, found at http://www.irs.gov/pub/irs-pdf/p590.pdf):

1) If NEITHER husband or wife has retirement option at work, then ALL Traditional IRA contributions are deductable, regardless of income.

2) If do NOT have retirement plan, but spouse DOES, AND you file JOINTLY, then your IRA deductilibity phases out between $150K and $160K of Modified AGI.

3) If you DO have a retirement plan at work, then if you are:

a) Single or HOH, then deductibility phases out between $45K and $55K

b) Married filing jointly, then deductibility phases out between $65K and $75K

4) If either spouse has a retirement plan at work and you file SEPARATELY, then you have no deductibility past $10K of income.

 

[Hyperborea]

Clarification regarding deductions for Traditional IRA contributions (source: IRS Publication 590, page 13, found at  http://www.irs.gov/pub/irs-pdf/p590.pdf):

There is the big danger with message boards - many of us with information who aren't experts only know the bits that apply to their personal situation. I've only had direct experience with the IRA rules for those working who have a company retirement plans and a non-working spouse or for not being allowed to contribute to their spouse's IRA because of AGI. Use the board for ideas but do your own research.

Thanks for the clarification with source docs gindie.

 

[JohnP]

Maggie

Starting an IRA is a great thing - just get it started and continue to fund it to the max yearly. It is almost impossible to do the wrong thing now. Maybe in five years, get out the statement and you'll discover that there is finally a significant cache that may need to have attention paid to it. Then you can consider 'maximizing' the investment - so begin to learn about investment now for, maybe, the year 2010.

So take the pressure off this topic for the near future!

The Motley Fools have good general ideas that should be considered. What I remember is - fund your IRA, Roth, and/or 401K, etc - use low cost providers (my bank has no low cost solutions other than CDs) - don't put insurance annuities in tax-deferred accounts - watch out for yearly fees, etc.

Give hubby a good hug for starting the ball rolling and, at your leisure, think of how to maximize this for your financially independant RE future.

Best wishes

JohnP