Americans Have Costly IRA Misconceptions

[jeffrey]

A Fidelity Investments poll found that the majority of Americans (60%) don't save with an Individual Retirement Account (IRA) and have a variety of costly misconceptions about them. This includes that the majority of people don't know the what the federal contribution limits are on all types of IRAs (the 2004 limit is $3,000 and is increasing to $4,000 for tax year 2005. An additional $500 can be added to the limit for people over 50 years old)

Another costly misconception people had was that if they don't qualify for an IRA's tax deduction, they believe an IRA will have no benefit for them. This means that they are possibly missing out on the benefits of the Roth IRA which doesn't allow a tax deduction, but lets the money contributed grow tax free. Even with a modified adjusted gross income of up to $160,000 for those married filing jointly ($110,000 for singles) you can qualify for the Roth IRA.




Americans also don't understand they way they may contribute to an IRA, There's a misconception that IRA contributions for each year must be made all at once which would make contributing to an IRA extremely difficult for most people. The truth is that contributions can be made to an IRA in small amounts over time. It can even be done through automatic monthly deductions from your bank account.

It's still possible to make a contribution to your IRA for tax year 2004 until April 15, 2005. Any contributions made after April 15 must be toward the 2005 tax year limit. For more information, read Roth IRA and Traditional IRA Basics

[csonneman]

I think that IRA's are a great idea despite the fack that I do not have one. I have other sources of savings that I am currently using. Hopefully as I get more income to go to my retirement I will start an IRA. My girlfriend has 1 and she puts in as much as she can afford. It seems small now but the growth potential is great.

One suggestion that I would make is to consider 403(b) investments, (commonly called Tax Sheltered Annuities), if they are available to you. They are mostly for civil employees and non-profits. They are nice because they are taken out pre tax and sometimes you end up with a bigger paycheck because you fall into a lower bracket.

I also like a Money Market account because you can use it like a savings account with access to it but it pay a higher intrest rate. You do have to keep a higher minimum but once you get it started it nice to have.