United States

YourMoneyCounts Home | About Us | Contact Us | Privacy

Search

Investing | Homeownership | Retirement planning | Buying a car | Managing your mortgage

IRAs

Whether or not you have a retirement savings account with your employer, you're always eligible for your own dedicated retirement account. An individual retirement account (IRA) is an account you set up and manage yourself. You'll have certain tax benefits, such as being able to defer taxes on any earnings in the account, in exchange for not withdrawing the money until you reach retirement age, but typically no earlier than 59 1/2. You choose the way you invest your assets, so you can focus on meeting your specific investment goals.

Following the rules

To contribute to an IRA, you must earn income. The only exception is that if your spouse doesn't earn an income and you do, you can contribute to an IRA you set up in his or her name as well as to an account in your own name. That's called a spousal IRA, and it's controlled by the person in whose name it's established.

There are three types of IRAs.

Traditional non-deductible You qualify if you have earned income	You contribute after-tax dollars Earnings in the account are tax deferred You're required to begin taking withdrawals when you turn 70 1/2 and owe income tax at your regular rate
Traditional deductible You qualify if you have earned income and either: You aren't eligible for a retirement plan at work, or Your modified adjusted gross income (MAGI) is less than $60,000 if you're single or $80,000 if you're married and file a joint return	You can deduct your contribution when you file your income tax return, which lowers your taxable salary Earnings in the account are tax deferred You're required to begin taking withdrawals when you turn 70 1/2 and owe income tax at your regular rate
Roth You qualify if you have earned income and your MAGI is less than $110,000 if you're single and less than $160,000 if you're married and file a joint return	You contribute after-tax dollars You don't owe tax on any earnings in the account as they accumulate You can withdraw your contributions and earnings tax free if you're at least 59 1/2 and your account has been open at least five years

Traditional non-deductible You qualify if you have earned income

You contribute after-tax dollars
Earnings in the account are tax deferred
You're required to begin taking withdrawals when you turn 70 1/2 and owe income tax at your regular rate

Traditional deductible
You qualify if you have earned income and either:

You aren't eligible for a retirement plan at work, or
Your modified adjusted gross income (MAGI) is less than $60,000 if you're single or $80,000 if you're married and file a joint return

You can deduct your contribution when you file your income tax return, which lowers your taxable salary
Earnings in the account are tax deferred
You're required to begin taking withdrawals when you turn 70 1/2 and owe income tax at your regular rate

Roth
You qualify if you have earned income and your MAGI is less than $110,000 if you're single and less than $160,000 if you're married and file a joint return

You contribute after-tax dollars
You don't owe tax on any earnings in the account as they accumulate
You can withdraw your contributions and earnings tax free if you're at least 59 1/2 and your account has been open at least five years

An IRA is easy to open — you can get the forms from your bank, brokerage firm, mutual fund company or other financial services firm. Because you can invest your IRA assets almost any way you like, you'll want to select an IRA provider that offers the choices you're interested in. Your list might include certificates of deposit (CDs), mutual funds, individual stocks and bonds or a range of other alternatives.

You can contribute up to $4,000 of earned income in 2005 and another $4,000 in 2006 — though if you earn less than $4,000 you can contribute only as much as you earned. If you're 50 or older, you can also make catch-up contributions of $500 in 2005 and $1,000 in 2006. And you won't have to pay taxes on your earnings until retirement — or never, in the case of a Roth IRA if you follow the rules for withdrawal. That lets your money accumulate more quickly than it would if you were paying taxes, and it makes a big difference to your account balance.

Consumer Resources

Tools and calculators

Glossary

Quizzes

Articles

Booklets

FAQs

This content is provided as educational material only and is not intended to solicit you for any product or service. These materials are not a recommendation by HSBC for any product, service or financial strategy. The suggestions and recommendations contained within are general in nature, and may or may not apply to your particular circumstances. Securities, annuity and insurance products are not FDIC insured or insured by any federal government agency of the United States; subject to investment risk, including possible loss of principal invested. All decisions regarding the tax implications of your investment(s) should be made in connection with your independent tax advisor. Should you need further assistance, HSBC strongly recommends contacting an independent attorney, tax professional or financial consultant.