IRA deadline draws closer

March 27, 2011 at 12:00a.m.

Tax day is about a month away. But don’t let another important financial deadline pass you by.

April 18 is also the last day you can make contributions to traditional or Roth Individual Retirement Accounts (IRA) for 2010.

The two savings vehicles, which you can open at a bank or a investment firm, have different advantages.

Contributions into a traditional IRA can be deductible, reducing your tax bill today, although it depends on how much money you earn and whether you are covered by a workplace retirement plan. However, when you take the money out at retirement, it’s taxed.

Roth IRAs, on the other hand, are funded with after-tax dollars, but the withdrawals in retirement are tax-free. This makes the Roth attractive to investors convinced that taxes are only going north.

Roths also have a lot of flexibility. You can withdraw the money you invest at any time without penalty, making it a nifty savings vehicle for people who are nervous about putting their money away in a retirement plan that’s harder to access.

Many advisers suggest workers invest in their 401(k) plans at work up to the company match, if offered, and then max out the Roth IRA next.

The maximum contribution for both types of IRAs is $5,000 plus a $1,000 catch up contribution for those 50 and over.

For details, check out IRS Publication 590.

Kara McGuire is a columnist for the Star Tribune in Minneapolis. Readers may send her e-mail at kmcguirestartribune.com or follow her on Twitter kablog.

2011, Star Tribune (Minneapolis)

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