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It's always IRA season
by Steven Schneider, First Tech Investment Services, Beaverton branch

What to know about IRAs

It seems like the tax laws around IRAs (individual retirement accounts) change each year. For that reason, a lot of members that should be looking at an IRA sidestep the issue. But, IRAs really are a powerful tool once you understand them.
Investment foundation
An IRA is a solid part of any retirement plan. Of course, the type of IRA a person invests in depends on income levels and the individual's participation in other retirement plans. But there is one very important factor every investor must understand about an IRA: An IRA is not a product. An IRA is a type of account. The funds put into an IRA account are invested into CDs, Mutual Funds, Annuities, Stocks, Bonds or general savings. The mix of investment options is based on the investor's risk tolerances and investment goals. In other words, the financial consultant should always look for the "best fit" for the investor.
General guidelines

One thing I always tell my clients is to take advantage of their employer's retirement plan at least to the extent that the employer is matching their contributions. Those can be the standard 401(k) or even the state employee 403(b) plans. After all, free money is free money. The Roth IRA is a great tool to use in conjunction with your employer provided retirement plan.

Traditional IRA accounts

Money put into a traditional IRA is usually tax-deferred. This means the money going into an IRA is not taxed and remains untaxed as long as the funds stay in the IRA. Earnings are treated the same way. But, once the money is taken out (when you retire) the funds are taxed at your income tax bracket. Withdrawals before the age of 59 ½ may be subject to an additional early withdrawal penalty of 10% and withdrawals must start being made the year you reach age 70 ½. But always consult your tax advisor.

Roth IRA

Named after the Delaware senator that drafted the legislation to create the account, the Roth IRA has a contribution limit equal to that of the Traditional IRA. The difference is in the taxes. The money going into a Roth IRA is taxed at the investor's current tax rate. Later, when the money is taken out, there is no tax. In that way, Roth IRAs are not subject to income taxes.

When comparing regular and Roth IRAs, the trade-off is usually whether the loss of deductibility on current contributions is worth the benefit of never having to pay income taxes on the future earnings of the funds within the IRA. For many, the Roth IRA can result in superior long-term benefits.

Investment Services offered through CUSO Financial Services, L.P. (CFS). First Tech Credit Union is affiliated with CFS. Member NASD/SIPC.

Investments are not NCUA/NCUSIF insured or credit union guaranteed and may lose value. Financial Advisor is an employee of First Tech Investment Services, a wholly owned subsidiary of First Tech Credit Union and registered through CUSO Financial Services, L.P.

A periodic plan does not assure a profit and does not protect against loss in declining markets. Such a plan involves continuous investment, so an investor should consider financial ability to continue purchases through periods of low price levels. For specific tax advice, please consult a professional.

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