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Retirement and Taxes


I've been thinking a lot about retirement this week. I've also been thinking about my taxes a lot this week and how I need to hurry up and get them done. So how are these two related, you might wonder? Read on and find out.

If you have been thinking about contributing some money to your retirement fund through an Individual Retirement Account (IRA), you have about 8 weeks left to make your Year 2000 contribution (U.S.) Yes, you have until April 15th to make a contribution for last year. The earlier you make your contributions each year, the more time you give your money to grow but in this situation, it is better later than never.

By saving through an IRA, any interest or other earnings on contributions are either tax deferred or tax-free. This means that your earnings are reinvested and not reduced by income taxes. This tax benefit can boost your savings and is know as tax-deferred compounding.

Even if you have a retirement plan through work, an IRA can be an excellent way to supplement your retirement savings. As you may be aware, there are two types of IRA's available since 1997. The first is the Traditional IRA that offers deductible or non-deductible contributions and then taxes are paid on earnings when withdrawals are made.

The second is the ROTH IRA that offers non-deductible contributions but withdrawals are tax-free later. If you qualify you can contribute up to $2,000 per year to all your IRA's combined.

(Please consult with a professional tax or financial advisor to see if and what you may qualify for.)

Which IRA you contribute to depends a lot on the tax rate you have now and what your projected tax rate in retirement will be.

If you've been putting off contributing to an IRA, think again. Missed contributions can never be made up.

Take some time now to plan for your future and your retirement. Find out what is the best option for you, and make plans to start now. And while you are at it, start thinking about this year's contribution (2001). Investing $166 per month for the next 12 months will achieve your $2,000 goal by next March. Get your money working for you now. Reassess your budget and see if you can find a few extra dollars a month (even $25 a month is a good start) to put towards your retirement.

You won't be sorry!


By Doris Dobkins, money saving expert Author of "Financial Freedom A-Z Home Study Course" and publisher of the free weekly ezine $mart Money New$ To subscribe, send an email by clicking on this link --> join-smart_money_news@nova.sparklist.com or sign up at her web site: http://www.creativefinances.com

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