Retirement

Retirement and IRAs

Retirement planning is more important than ever for women in their 20s thru 50s. Social Security may not provide as much as it did for older generations. You should plan on funding much of your own retirement.

But doing so requires a plan and an early head start. Whether you're 25 or 55, though, time is still the best friend of investors.

Compounding is the magic fairy dust of time. The longer your savings and investments grow, the more earnings you get. This translates to, "early contributions grow bigger than later contributions."

Retirement planning involves taking stock of what savings you already have, then finding out what you might need with online calculators on the Tools page. It's easy, just answer some questions to get started.

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• Spousal IRA--You don't have to be working to fund this IRA. If you're not employed, but your spouse is, he can still fund an Individual Retirement Account (IRA) for you. Join our email list for this report.
• Rollover or consolidate retirement funds--Sometimes a change can improve returns. Join our email list to see this report.

IRAs build financial security

Roth IRA

It's not often that Uncle Sam hands out gifts, but IRAs (Individual Retirement Accounts) are one example. The only requirement is that you have to have earned income within certain limits, and put the money in the IRA before you get the gift.

What's the gift? In the case of a Roth IRA, it's freedom from future taxation on all growth in your IRA. (To get those benefits, you'll need to hold the Roth IRA for at least 5 years and until after age 59 and a half.)

We like to call Roth IRAs the "chocolate" fudge version of IRA, for their superior tax advantages.

The benefits can be huge. If you know about the power of compounding, you'll see that if you put money in and give it decades to grow, you may easily have 10 times the amount you put in. It will all be tax-free when you take it out in retirement if you follow the Roth rules.

Roth IRA contributions require that you fall below certain income guidelines. Here are the income limits from the IRS Roth charts.

You may contribute up to $5000 for the 2011 year, and an extra $1000 "catch-up" if you're over age 50. These totals are independent of any workplace contributions to a SIMPLE IRA or SEP IRA.

If you can't afford to contribute $5000, just put in what you can. Many mutual fund companies will accept contributions of $100 per month if you make it automatic. Auto pilot savings are often easier.

As long as you have sufficient earned income to cover the Roth IRA contribution, you may contribute at any age. Roth IRAs won't give you a current year tax-benefit, as they are made with after-tax dollars, but we think they're terrific for people with more than a decade to retirement.

Traditional IRA

Here comes the "vanilla" fudge version. Traditional IRAs provide tax-deferred growth rather than tax-free growth. If you follow the IRA rules, you'll get growth without current taxation.

Only when you take the money out of the IRA investment will Uncle Sam come with his hand out for taxes. And please, wait until after age 59 and a half so you don't get hit with 10% early withdrawal penalties in addition to the taxes.

Traditional IRAs give you a current year tax deduction, as they're made with pre-tax dollars. This will lower your taxable income and reduce taxes for that year.

Again, there are income and other guidelines to get this deductible IRA, although anyone with earned income can make a non-deductible IRA. Here are the IRS rules for IRAs.

Traditional IRAs come with the requirement to start taking distributions out by the time you reach age 70 and a half.

Spousal IRA

If you're not working but your spouse is, you can still contribute to one of these IRAs. They're a great way to boost family retirement savings. Choose either Roth or Traditional IRA for your Spousal IRA. Join our free email list  to download this article.

For the full requirements and rules about IRAs, check with your investment company or the IRSPublication 590.