Retire in Style

Death Prep

By Kimberly J. Howard

An Individual Retirement Account (IRA) is a great retirement savings tool for many women. Created by the federal government, IRAs can be funded while in your working years. During retirement, IRAs may help add to your Social Security benefits. The bottom line is: your retirement savings can begin with your annual IRA contribution.

If you are under 50 years old, the current maximum annual contribution amount is $5,000. If you’re 50 years or older, an additional $1,000 can be contributed. The contribution amounts are adjusted for inflation each year by the federal government.

IRAs come in two types: Traditional and Roth. To determine which one is best suited for your annual contribution, consider these key factors:

Advantages to a Traditional Deductible IRA:

• Tax Deductible: Your contribution is deductible on your federal income tax return for that year.

• Tax-Deferred Growth: Your contribution grows tax free until you withdraw the money, so you do not pay any taxes while your money is growing. Limits to a Traditional Deductible IRA:

• Adjusted Gross Income (AGI) Limits: The amount you can deduct is limited based on your AGI and if you participate in your employer sponsored retirement plans. Your contribution can be fully deducted on your income taxes, partially deducted or not deductible at all.

• 10 percent Penalty: The 10 percent penalty is used to encourage IRA owners to keep their money in their IRA until reaching age 59 ½. If you withdraw any of your money before then, you will incur a 10 percent penalty on your withdrawal amount. There are some exceptions to the rule: educational expenses, first time home purchase and certain medical expenses.

Advantages to a Roth IRA:

• Avoid Taxes in the Future: Roth IRAs grow tax-free, so no taxes are due when you withdraw your money.

• No Required Minimum Distributions (RMD): Roth IRAs don’t have RMDs after age 70 ½, so your money can continue to grow with the potential for larger dollar amounts to leave to heirs. Limitations to a Roth IRA:

• Adjusted Gross Income (AGI) Limitations: For high wage earners (single filing over $120,000 and married filing jointly over $177,000), Roth contributions are not allowed.

• Disqualified Distributions: The earnings in your Roth must remain in the account for five years (known as the five year clock) and until you reach 59 ½ years old. A 10 percent penalty will be applied to earning distributions that don’t meet these requirements.

Always consult a financial planner before you make your final IRA decision. Making the correct IRA choice now can benefit you down the road in retirement.

Kimberly J. Howard, CFP® is a Certified Financial Planner and the owner of KJH Financial Services, a Fee-Only practice located in Needham, MA (781-413-4879). Please visit us at or email Kim at

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