Information about IRA's

The folks from Safe Harbor Financial stopped by Studio10 with some important information about IRA's.  Below is a list of some of the questions and answers they discussed.

1. What is an IRA?
IRA stands for Individual Retirement Account. A tax-deferred retirement    account for an individual that permits individuals to set aside money each year, with earnings tax-deferred until withdrawals begin at age 59 1/2 or later.  Unlike 401(k) s, which are accounts provided by your company, the most common types of IRAs are accounts that you open on your own. There are several different types of IRAs, including traditional IRAs, Roth IRAs, SEP IRAs, and SIMPLE IRAs, unfortunately, not everyone gets to take advantage of them.
    
2.  What are some of the pitfalls of an IRA?
Each IRA’s has eligibility restrictions based on your income or employment status. And all have caps on how much you can contribute each year and penalties if you yank out your money before the designated retirement age. Although IRA’s are great for accumulating money to be used at some future date to enhance income, they do contain some pitfalls:

    1.  Distributions are taxed as ordinary income
    2.  Withdrawals often force you to pay more tax on your social Security
    3.  You must begin taking distributions at age 70½
    4.  There are income and contribution limits for IRA’s
    5.  All growth in the account increases your future tax liability
    6.  Withdrawals prior to 59½ are taxed as ordinary income and in most 
         Cases, an Internal Revenue Service penalty of 10%

 
3.  Are there consequences to beneficiaries with and IRA?
Does a retirement plan with so many pitfalls sound like a good plan to own during your retirement years? Probably not, but many retirees own this account, and have a good portion of their money in it. A good retirement vehicle at the time can turn into a perpetual tax liability once you retire.
THE UNKNOWN TAX TRAP.  It is at the time of total withdrawal of funds, which most often occurs upon the death of the owner, that the surprise happens.
The IRA does not get a “step-up in basis” at the time of your death. What this means is, that all of the money in the plan, including all of the deposits and all of the gain is subject to income tax when received by the beneficiary!

Since a vast majority of the $Billions now residing in IRA’s is destined to be passed on to the children of the owners, the tax bills will come as a tremendous shock to all concerned. In fact, it is not uncommon to see proceeds from and IRA that has been accumulated and tax sheltered in a relatively low tax bracket, incur taxes of 33% or more when added to the existing income of the beneficiary.

It is unfortunate that no one talked to them about what could happen upon the death of a spouse and the tax impact it could have to the beneficiary.  

4. Are you paying attention to your portfolio costs? 
While an investment portfolio is great way to build wealth, many investors are unaware of the variety of fees that are a part of just about every investment one can make. Mutual funds, annuities, stocks, and essentially all other investment vehicles come with fees attached. Some fees show up only at the time of purchase and/or sale, but others are regular and ongoing. The better you understand the expenses attached to certain investments, the better choices you can make.

For a free comprehensive personal review of your financial portfolio or to make an appointment with Jim, email Jim at jbyrd@safeharfin.com or call 1-251-625-1226 or toll free at 1-877-251-1984.

Find out how to get a free copy of his DVD or book, The Ultimate Success Secret, email Jim at jbyrd@safeharfin.com or call 1-877-251-1984.

Safe Harbor Financial Services
9056 Merritt Lane
Daphne, AL 36526
Call Toll Free: 866-251-1984 or local 251-625-1226
www.safeharfin.com