Individual Retirement Accounts -IRA

Individuals may establish an IRA account with tax deferred contributions not to exceed $2,000 for any one year or 100% of the income whichever is the lesser, or $2,250 with a non-working spouse filing a joint return. A couple filing jointly contributing $2,250 to the IRA may split the $2,250 into two different IRA accounts. The only stipulation is that the amount contributed to any one account may not exceed $2,000. Any individual covered under another retirement plan are not permitted tax deferrals on the contributed amount. However, all earnings in the IRA are tax deferred.

Just about any debt or equity security can be held by the IRA. However, speculative stocks, bonds, and aggressive mutual funds are not recommended. IRA contributions may not be invested in collectibles such as but not limited to coins, stamps, rugs, art work, etc., with the exception of new gold and silver coins the U.S. Government issues. If any part of the IRA is used to purchase collectibles, that amount is immediately taxed as a premature distribution.

Payout from an IRA may not begin until age 59-1/2. And payout from an IRA must begin prior to age 70-1/2. If an individual does not withdraw a sufficient amount annually after age 70-1/2, the IRS levies a 50% tax on the insufficient withdrawal. They don't want you leaving the money in the account earning tax deferred earnings. At age 70-1/2 a man has a life expectancy of 12 years. Therefore, the IRS requires 1/12th of the IRA to be withdrawn.

When it comes time for payout, there are two choices. The one almost always chosen is the monthly payout. The individual only pays tax on his annual payout; and it is taxed as ordinary income. The alternative is a lump sum payout. Unfortunately, the IRS taxes the entire amount of the lump sum payout at that time as ordinary income.