IRAs: Traditional and Roth

If you’re looking for ways to save for retirement on your own, or if you’d like to compliment the retirement benefits provided by your employer, Individual Retirement Arrangements, or IRAs, are a great place to start.

Traditional IRA

In a nutshell, this is how the traditional IRA works. An IRA is a personal savings plan that gives you tax advantages for setting aside money for retirement

That’s the nutshell…now let’s talk about the nut.

Who’s allowed to open a traditional IRA?

• You are under age 70½ and have received compensation from working.
• The traditional IRA allows you put a certain amount of money into the account each year. Some or all of the money you place into the account is either deductible or non-deductible on your income tax return for that year.
• As long as your money is in the account, it accumulates income tax deferred, and then when you want to take your money out, you pay taxes on it at that time.
• Generally you can contribute to both a 401k and an IRA or Roth IRA in the same year. If your employer does provide a pension or other retirement savings plan, the amount of your IRA contribution that is income tax deductible is phased out based on your adjusted gross income and tax filing status.
• Even above these income limits you can still make contribution to an IRA, but they may not be deducted from your income taxes.  
• It is also possible to make contributions to an IRA and get tax-deferred growth even if a contribution is not deductible.
• If your employer does NOT have a pension plan or other retirement savings plan, you can deduct the full contribution amount.
• If you’re married, both you and your spouse can contribute to an IRA. Even if your spouse doesn’t work, he or she can open a “spousal” IRA.
• You can invest your IRA dollars in a wide range of investments, and the earnings on your IRA grow income tax-deferred.
• You should not plan on spending your IRA money until you retire. If you withdraw money before 59½, you have to pay regular income taxes on your withdrawal and you are subject to an additional 10% penalty tax. There are some exceptions to this rule and a financial professional can tell you more.
• If you’re over 50, you may contribute catch-up contribution to your IRA. Congress added this catch-up contribution to allow workers to save more as they come closer to retirement.

When it’s time to spend the cash…

• After 59½ you can take your money out of your IRA at any time, however, you will have to pay income taxes when you make your withdrawals.

• You can leave your IRA alone until you reach age 70½, which is when the IRS will require that you take a minimum amount out each year. The minimum amount that you must withdraw is known as your “Required Minimum Distribution.”

Roth IRA

The most notable difference between a traditional and Roth IRA is that your contributions to the Roth IRA are NOT income tax deductible; however, when you make withdrawals from your Roth IRA at retirement…you don’t have to pay any income taxes.

There are income limitations on who can open and contribute to a Roth IRA, a financial professional can tell you if you qualify for this type of retirement vehicle.

To receive income tax-free withdrawals, you simply need to allow the Roth IRA to accumulate tax-deferred for a minimum of five years AND attaining age 59½. If you only meet one of these requirements, your withdrawals may be subject to income tax and the IRS 10% penalty.

When it’s time to spend the money in retirement after age 59½…

• Receive tax-free retirement income

• Control your distributions - you don’t have to make mandatory required minimum distributons at age 70½. You can let the money accumulate for as long as you and your spouse lives.

How to open or consolidate into an IRA

An ING Transition Counselor can help you establish or consolidate into an IRA.  ING Transition Counselors are fully licensed financial professionals specially trained to assist with retirement planning.  To speak to one of our Transition Counselors please call 877-665-8544.

Registered Representatives of, securities, and investment advisory services offered through ING Financial Partners (member SIPC).

You should consider the investment objectives, risks, and charges and expenses of the variable product and its underlying fund options; or mutual funds offered through a retirement plan, carefully before investing. The prospectuses/prospectus summaries/information booklets contain this and other information, which can be obtained by contacting your local representative. Please read the information carefully before investing.

Insurance products, annuities, and retirement plan funding options issued by (third party administrative services may also be provided by) ING Life Insurance and Annuity Company, One Orange Way, Windsor, CT 06095-4774. Annuities issued by ReliaStar Life Insurance Company, 20 Washington Avenue South, Minneapolis, MN 55401. Securities offered through ING Financial Advisers, LLC (member SIPC), and other broker-dealers with which it has selling agreements. These companies are members of the ING family of companies. Insurance obligations are the responsibility of each individual company. Products and services may not be available in all states.