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It takes careful preparation to ensure a comfortable income for the future. With all the articles that are being written, it is well know that we will not be able to just depend on social security for our retirement. With The Taxpayer Relief Act of 1997, a variety of new IRA options are available. There are now three types of IRA's available to help you secure your financial future.
The three types of IRA's that can be used to build your nest egg for your secure future; Traditional, Roth and Educational.
Traditional IRA
If you work and earn income, there's no better way to save money for retirement and take advantage of federal income tax savings than by opening up an Individual Retirement Account. A traditional IRA program is an account that allows you to defer taxes on your earnings until you withdraw the funds. Depending on your own tax situation, you may be able to receive a tax deduction for this type of deposit. You will need to start withdrawing funds once you reach the age of 70 ½.
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Roth IRA
The new ROTH IRA provides tax-free earnings on non-deductible, after-tax contributions. This IRA is gaining in popularity because the account allows all earnings to grow tax -free in this account and with this type of IRA there is no age that you must start distributions from the account. A big advantage is that distributions of funds held at least five years in a Roth IRA will be tax-and penalty-free for the following reasons listed below:After 59 ½ years of age
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- Disability
- Death
- First-time home purchase
Since you'll be paying taxes on contributions now, instead of at retirement, a Roth IRA could be a wise choice for anyone who expects their tax bracket to be about the same-or even higher after they retire.
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Educational IRA
If, like most parents, you're looking for ways to put your child's college education fund in high gear, the Educational IRA could be just the answer. The annual maximum deposit is $500.00 per child from all sources. The contribution is not tax deductible, but earnings grow tax-free and you pay no taxes or penalties on the money withdrawn to pay for qualified higher education expenses before the child reaches age 30.
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