Bill Gerhard: Hi! I'm Bill Gerhard, Director of Financial Services for AAA. In this video series I'm discussing how to save for retirement using IRAs.
Let's look at an IRA that you may want to consider in place of a Traditional IRA or in addition to a Traditional IRA. A Roth IRA has different eligibility rules than a Traditional Individual Retirement Account. You can contribute to a Roth IRA at any age if you have earned income, such as salaries, professional fees or bonuses. You fund a Roth IRA with after-tax dollars. You may withdraw direct contributions to a Roth IRA without tax or penalty after the seasoning period, which is currently 5 years. Like a Traditional IRA, the amount you can contribute to a Roth IRA each year is limited to $5,000 or $6,000 if you're over the age of 50. See a tax professional to determine the amount you're allowed to invest. You can contribute to a Roth IRA anytime for a given calendar year before you file your taxes. For example, you could contribute for the current year between January 1st of that year, and April 15th of the following year. This will also applies to a Traditional IRA.
Starting at age 50 you're allowed to make an additional contribution of up to $1,000 these are called Catch-Up Contributions. Tax rules change, so be sure to check with your tax prepare or online at irs.
gov for the latest updates. For example, tax rules changed in 2010, making it easier for some investors to convert a Traditional IRA to a Roth IRA. You can open a Roth IRA, a Traditional IRA or both at a Bank, a Brokerage, a Mutual Fund or Insurance Company, some Affinity Groups such as AAA have partnerships with banks and insurance companies that enable them to offer IRAs too. Shop around, because fees, interest rates and annual percentage yield vary widely between providers. Do not automatically stick with your existing bank and overlook online providers. Lower operating cost may enable online providers to offer higher rates.
AAA offers you information in this video series for educational purposes only. Carefully consider objectives, risks, expenses and tax implications before investing.
In our next video we'll focus on finding a provider, where do you go to open an IRA?