lotus

previous page: Mutual Fund Beginner Guide: Purchasing Shares
  
page up: Investing Articles: Mutual Funds
  
next page: No-Load Mutual Funds and IRA's. Withholding. Starting Early

No-Load Mutual Funds and IRA's




Description

This article is from the Investing Articles: Mutual Funds series.

No-Load Mutual Funds and IRA's

As with so many financial and investment vehicles, IRA's (Individual Retirement Accounts), too, have been much in the news in recent months both because of the importance of IRA's in helping individuals prepare for retirement, as well as recently enacted and pending regulatory changes.

With Social Security and pensions likely to be inadequate to meet the needs of retirees, the benefits of today's IRA's warrant every individual investor's careful consideration, and 100% no-load funds are an ideal investment vehicle for your IRA.

Quite simply, as explained in Evergreen Events, a publication of the Evergreen Group, an IRA is a personal retirement plan established in your name into which you may contribute up to the lesser of $2,000 or 100% of your earned employment income each year. Contributions for a particular tax year can be made up to April 15 of the following year. You may make contributions for each year you have earned income until you reach the age 70-1/2.

Deductibility

One important benefit to an IRA is tax deductibility of contributions. If neither you nor your spouse is an active participant in an employer maintained retirement plan, your contributions will be fully deductible regardless of your level of income. If you or your spouse is an active participant in an employer maintained retirement plan, your contributions may still be partially deductible. You may make both deductible and nondeductible contributions, however, your total for any tax year cannot exceed the limit stated above.

Tax Deferral

Another IRA benefit is that the earnings are tax deferred until withdrawn. Taxes are not due on these earnings until you take a distribution from your IRA, which can be done without penalty once you reach age 59-1/2.

  • An IRA rollover allows you to take possession of your IRA without penalty provided you roll it back into an IRA within 60 days.
  • An IRA transfer moves your IRA directly from one institution to another. You never take possession of the money.

Either way you can move all or part of your IRA while it remains completely tax-deferred. But while you can transfer an IRA as often as you like, you can roll over each of your IRA's only once in any 12-month period.

This information is intended to give a basic idea of what an IRA is and how it can benefit you. Careful financial planning now can help you to provide for a comfortable future.

Recent and Pending Changes

A new law*, the "Unemployment Compensation Amendments Act of 1992," brings three major changes. First, it requires that employers withhold 20% of all taxable pension distributions (except annuities) made to participants. Second, it requires most plans be amended to allow participants to have their distributions directly transferred to another qualified plan or an IRA of their choice. Last, it liberalizes the rules regarding rollovers of plan distributions to allow most distributions to be rolled over into an IRA. This new law applies to distributions made after December 31, 1992.

Legislation is pending in Congress that would increase the income cap for tax-deductible IRA contributions from $25,000 for individuals and $40,000 for joint filers to $80,000 and $120,000, respectively. Penalty-free withdrawals would be allowed for first-time homebuyers, education expenses, medical expenses and long-term unemployment under the bill.

*In 1986 Congress limited deductible IRA's to people below certain income levels and not covered by company pension plans.

 

Continue to:













TOP
previous page: Mutual Fund Beginner Guide: Purchasing Shares
  
page up: Investing Articles: Mutual Funds
  
next page: No-Load Mutual Funds and IRA's. Withholding. Starting Early