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Saving for retirement is important.  To help people save for retirement, the government created Individual Retirement Accounts (or IRAs) that provide tax benefits.  Despite this, many people neglect their retirement savings because there are so many different kinds of IRAs that choosing one can beconfusing.  Below are the various types of IRAs and some of their basic features.

Traditional IRAs
In a traditional IRA one of the most important benefits is that there is an immediate tax benefit for investing.  The money put into the Traditional IRA, and the interest earned on it is considered tax-deferred.  This means that you will not pay taxes on itnow, but will pay taxes on it later, when money is withdrawn after retirement.  This is beneficial becausemost individuals are likely to be in a lower tax bracket after retirement, than the bracket they arein as a working adult. 

Click Here to Listen to "IRAs"To open a Traditional IRA you must be under the age of 70 ½ at the end of the calendar year.  You must also have some type of compensation, that is you must have income from wages, salaries, bonuses, or commissions. 

Follow the link below for more information on Traditional IRA from the Internal Revenue Service

IRS Information on Traditional IRAs

Roth IRAs
The major difference between a Roth IRA and a Traditional IRA is that there are no federal income tax deductions for contributions to a Roth IRA.  Instead, the Roth IRA generally provides for tax-free withdrawal of earnings and principal. The money put into a Roth IRA is taxed as common income, and so will not be taxed again when you withdraw it after retirement.  Also, unlike other IRAs, you are not required to take distributions from a Roth IRA at any age.  Another difference between a Roth and a Traditional IRA, is that there is no age restriction for starting or contributing to a Roth IRA. For more complete information on qualifications, rules, and restrictions on the Roth IRA visit the Internal Revenue Service website at the link below…

IRS Information on Roth IRAs

A SIMPLE plan – or Savings Incentive Match Plan - is a retirement plan for some small employers and self-employed individuals.   In a SIMPLE Plan an employee agrees to have their salary reduced by a certain percentage each pay so that the employer can then contribute that amount to the employee’s SIMPLE IRA account.  Employers can also match the employee contribution.  For more details, including what type of companies qualify for SIMPLE plans, follow the IRS link below…

IRS Information on SIMPLE Plans

A SEP is officially known as a Simplified Employee Pension Plan.  This plan is designed for self-employed people and small business owners.  Contribution to a SEP are made directly to an IRA set up for the employee (SEP-IRA) 

IRS Information on Simplified Employee Pension Plans


How Much Can I Contribute to My IRA?
If you are under 50 years of age on 12/31/08, the maximum amount you can contribute to an IRA in 2008 is $5,000. If you earned less than $5,000, the maximum amount of your contribution can not be more than your taxible income for the year.

If you are 50 or older on 12/31/08 you may contribute $6,000. Again, if you earned less than $6,000, the maximum amount of your contribution can not be more than your taxible income for the year.

For more complete contribution rules, visit the IRS website at the link below...

IRS Information on IRA Contributions