A word on IRAs

Good Neighbor Tips. A blog by Erin Doan State Farm Insurance Agency.

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With the hustle and bustle of the holidays behind you, January is a good month to take a look at retirement savings. Are you on track to reach your retirement goals? Many people aren’t. In fact, just 14 percent of American workers are very confident they’ll have enough money to live comfortably in retirement.¹ And nearly 75 percent of retirees said they hadn’t saved enough and would have saved more if they could do it all over again.²

If you don’t have an individual retirement account (IRA)—or haven’t thought about your existing account recently—it may be time to take another look at this option.

Benefits of IRAs

The primary benefit of an IRA is the choice you have in where your money is invested. Unlike employer-sponsored 401(k) plans, which may limit your investment choices, you can choose to direct your IRA savings to stocks, bonds, real estate, mutual funds and more. An IRA can supplement your retirement savings, making it a nice complement to an existing 401(k) plan.

IRAs also give you flexibility. Some IRAs allow you to withdraw your IRA contributions (not the earnings) without penalty before you retire. In some cases, such as a first home purchase, you may be allowed to withdraw some of your contributions and earnings without penalty.

Choose Which Type Works for You

Traditional IRAs have been around for some time, but the newer Roth IRA has been an option only since 1997. Both have advantages, depending on your savings structure.

With either IRA, your investment is tax-deferred: You generally don’t pay taxes until you withdraw the money at retirement. With a traditional IRA, all or some of your contributions may be tax-deductible when they are made, but you will pay tax on the full amount when you withdraw funds. Contributions to Roth IRAs, on the other hand, are taxed up front, but you can withdraw them at any time—and after age 59½, withdrawals are tax-free.

Since eligibility rules vary, you may wish consult with your tax advisor as you evaluate your options.

Decide How Much to Invest

For the 2012 tax year, if you’re younger than 50 years of age, you may contribute up to $5,000 (or 100% of your earned income, whichever is less) to either a traditional or Roth IRA—for 2013, you may contribute up to $5,500. Keep in mind that if you have both types of accounts, the contribution limit represents the total you may contribute among all IRAs for the year.

Several variables will impact how much you’re able to contribute. For example:

• Those 50 and older may generally contribute $6,500 per year to an IRA.
• Your Roth IRA contribution eligibility is determined by your income level.
• Your Traditional IRA contribution deductibility may be impacted by your income level.
• Rollovers from other accounts are possible, though you may incur a transfer or termination fee from the company that holds your IRA.

Fund by April 15

Whatever your IRA choice or contribution level, you have until the federal income tax return due date—April 15, 2013—to fund your account for the 2012 tax year, but why wait? Make a savings resolution and start today!

To learn more about IRAs contact your State Farm® agent.

Neither State Farm nor its agents provide tax or legal advice. Consult your own tax or legal adviser regarding your circumstances.

¹2012 Retirement Confidence Survey, Employee Benefit Research Institute, March 2012

²2012 University of Michigan Health and Retirement Survey

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This blog has been brought to you by Erin Doan State Farm Insurance Agency of Scottville. 231-757-3115. www.erindoan.com