It is never too early to begin preparing for your retirement and one of the best ways to prepare would be to set up an Individual Retirement Account (often referred to as an IRA).
It doesn't take a lot to set up an IRA. The trustee (or custodian) may be a bank, mutual fund, brokerage house or other financial institution. You can't be your own trustee.
An IRA can be established and a contribution made after year-end, no later than the due date for filing the income tax return for that year, not including extensions. This generally means that you simply have until April 15th of the following year to make your contribution and deduct it on your tax return.
The most you'll be able to contribute to an IRA in any single year (as of 2006) is below $4000 or an amount equal to the compensation included in income for the year. Those 50 years old and above will also be allowed to make additional $1000 catch-up contributions to an IRA every year to help them save a lot more for retirement.
In 2008, IRA contribution limits will be raised to $5000, while the catch up contribution for all those 50 years old and above will remain at $1000.
You do not have to contribute the full amount allowed every year. You could skip a year or perhaps several years. You may resume making contributions in any upcoming year, but you cannot add additional funds to make up for those years when no contribution was made.
Contributions must be from compensation. This may be from wages, salaries, commissions and other sources of earned income. Contributions do not include things such as deferred compensations, retirement payments, or even portfolio income from interest or dividends.
You can contribute more than the allowable quantity. Although, a 6 percent excise tax penalty will be assessed.
No contributions may be made to an inherited IRA, in a form other than cash, or during or after the year in which the person reaches age 70.
This really is a quick and general breakdown of IRAs. The rules are slightly different for Roth IRAs, which have their own contribution and distribution limitations.
Before setting up an IRA, take the time to talk to your banker, accountant, or financial consultant to make sure you've got a firm grasp on your alternatives.
If eligible, they may suggest a restructuring strategy for your for finances or help you restructure your small business. Getting assistance in restructuring business plans to help your small company succeed.
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