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Question:


What steps do I need to take in order to open an IRA account?
-YismariJones


Answer:


Opening an account is easy. Just pick a discount brokerage or fund management company, download the required form, fill it out and send it in. Then make sure to fund it by April 15 of the year after the one for which you’re contributing. Before you open it, though, you must decide whether you want a traditional individual retirement account or a Roth. A traditional IRA is funded with before-tax dollars, meaning that your reported income – and therefore your tax liability – is reduced by the amount that you contribute, up to $5,000, or $6,000 if you are over 50 years old. You don’t get off scot-free, though. Money that you withdraw in retirement is taxable as ordinary income.

A Roth works the opposite way. You fund it with money that has already been taxed, and when you withdraw it, there is no further tax due, either on the amount of your original contributions or on any investment gains generated. Whether you should open a traditional IRA or a Roth depends on whether you expect to be in a higher or lower tax bracket in retirement; a lower one would argue for a traditional IRA. Another consideration is whether you may need to take money out before you retire. There is more flexibility with a Roth because a portion of what you withdraw has already been taxed, although there still may be a penalty to pay if you are under 59 and a half years old.

-Conrad de Aenlle



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