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Now that we are in 2006, you are one
year closer to retirement. Of course, if
you are still in your twenties, this
milestone may not mean that much to you.
But if you are 50 or older, the prospect
of actually becoming a retiree looms
larger as the years go by.
Fortunately, it has just
become a little easier to build savings
for your retirement years. Why? Because,
starting Jan. 1, you can put in $1,000
in catch-up contributions to your
traditional or Roth IRA, up from $500 in
2005. Given the $4,000 annual limit for
regular contributions, you can put in a
total of $5,000 to your IRA in 2006.
Fully funding your IRA
should be one of your top investment
priorities. Keep in mind that IRAs offer
two major benefits:
Tax advantages. If
you have a traditional IRA, your
earnings have the potential to grow
tax-deferred, so your money can grow
faster than it would in an investment on
which you paid taxes every year. (You
will eventually have to pay taxes on
your earnings, but, by then, you may be
in a lower tax bracket.) Also, depending
on your income level, your contributions
may be tax-deductible. When you have a
Roth IRA, you can withdraw your
contributions at any time, free of
taxes. You can also take out earnings,
free of taxes, as long as you don't
begin withdrawals until you are 59 1/2
and you have had your account for at
least five years.
Variety of investment
options - You can invest your IRA in
virtually any security you choose:
stocks, bonds, Treasury bills,
certificates of deposit, etc. In fact,
you are not confined to just one type of
investment within your IRA; you can
create a diversified portfolio
containing a variety of holdings.
Given these tax advantages
and this investment flexibility, it is
almost certainly a good idea to max out
your IRA every single year. Of course,
it is not always that easy to come up
with $5,000 at one time, but that is not
necessary. You can fund your IRA over
the course of a year by putting in about
$416 per month. And, to make it even
easier for you to completely fund your
IRA, you could have that $416 moved
automatically, via a bank authorization,
from your checking or savings account to
your IRA.
On the other hand, if you
can possibly afford to pay the full
$5,000 in the first few weeks of the
year, you may well end up with more
money in the long run. You will be
giving your money more time to grow. As
an investor, time can be your greatest
ally.
But however you do it, over
12 months or right away, put the full
amount into your IRA. Along with your
401(k) or other employer-sponsored
retirement plan, your IRA is one of the
best retirement-savings vehicles you
have available. And now that you are on
the plus side of 50, you will want to
really focus your efforts on making sure
you have the resources available to
enjoy the retirement lifestyle you
deserve.
(Louis Mullinger can be
reached at the Edwards Jones office on
Wake Union Church Road in Wake Forest.)
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