Investment + tax avoidance 10 things you need to know about IRA

Investment + tax avoidance 10 things you need to know about IRA In 2010, the amount of individual retirement savings accounts (IRA) in the United States was estimated at 4.7 trillion yuan, accounting for all retirement account funds...

Investment + tax avoidance 10 things you need to know about IRA In 2010, the amount of individual retirement savings accounts (IRAs) in the United States was estimated at 4.7 trillion yuan, accounting for 25% of all retirement accounts. There are 49 million Americans with IRA retirement accounts. What investments should I choose for my IRA account? How to avoid taxes? They are all related to future retirement life, so you should have the following ten basic understandings of IRA accounts: 1. Whether to defer tax payment. Each person under the age of 50 can deposit up to 5,000 yuan per year into a traditional IRA account, and those over 50 can deposit 6,000 yuan. The amount deposited is deducted from the income for that year and income tax is exempted. When withdrawn, the principal and interest will be taxed together. The amount in a Roth IRA account cannot be deducted from income. When withdrawn after at least five years, the principal and interest will not be taxed. 2. The deposit deadline is later than that of 401(k). The annual deposit deadline for 401(k) retirement accounts provided by employers is December 31, while the deadline for IRA accounts can wait until the tax filing deadline. You can file your taxes first and then deposit the money into your IRA account, but you must do so before the tax filing deadline. 3. Most money is transferred from 401(k). According to the 2008 report, most IRA accounts are rolled over from 401(k) accounts. The maximum amount that each person can deposit into an IRA account per year is 5,000 yuan or 6,000 yuan. However, if you change jobs or reach retirement age, there is no upper limit on the amount that can be transferred from a 401(k) account to an IRA account. 4. The retirement age is higher. There is no penalty for a 55-year-old retiree to withdraw deposits from his 401(k) account. However, if he transfers the money to an IRA account, he must wait until the age of 59 and a half to withdraw the money without penalty. Therefore, experts suggest that people who retire at the age of 55 can transfer some of the temporarily unused money to an IRA account and leave money that may be needed urgently in a 401(k) account. 5. No penalty for early withdrawal If medical expenses exceed 7.5% of the annual income, the money withdrawn from the IRA account is not subject to the 10% penalty for withdrawal before the age of 59 and a half. In addition, there is no penalty for withdrawing money from an IRA account if you buy health insurance after losing your job, if you are disabled, or if you are a reserve soldier and are called to serve. The money in the IRA account can also be used to pay for higher education tuition and purchase the first house (no more than 10,000 yuan for a single person and 20,000 yuan for a couple). Annuities are paid based on life expectancy without paying a 10% penalty. 6. Choose your own investments The most popular ways to invest in IRA accounts are stocks and mutual funds, followed by cash and bonds. The choice of investments and how to transfer them is the sole responsibility of the individual. The older you get and the more savings you have in your IRA account, the more you should diversify your investments and avoid risks. 7. Roth IRA is becoming more and more popular. Originally, there was a limit on income that could not exceed $100,000 when transferring from a traditional IRA to a Roth IRA. However, after this restriction was lifted in 2010, the amount transferred to a Roth IRA account increased significantly. Although you are taxed when you withdraw money from an IRA account and roll it into a Roth IRA, you are not taxed when you withdraw money in retirement. Experts believe that paying taxes now can eliminate concerns about changes in tax rates later. 8. Withdrawal within a time limit. The money in a traditional IRA account cannot be tax-deferred indefinitely. It must be withdrawn before the age of 70 and a half. The amount not withdrawn in accordance with the regulations must pay 50% tax. According to regulations, after reaching the age of 71 and a half, the first payment must be withdrawn before April 1 of the next year, and thereafter before December 31 of each year. Therefore, if you withdraw the first payment before April 1, you will receive the second payment before December 31 of the same year. The two payments may result in an increase in income and a higher tax rate. 9. There is a difference in fees. Compared with 401(k) accounts, IRA individual retirement accounts do not enjoy group discounts, so the fees paid when investing are higher. Therefore, you need to carefully compare the fees of each investment and choose similar investments with lower fees whenever possible. Even if the difference is only 1%, it is still considerable over decades. 10. Tax benefits for high- and low-income people. Retirees who have a large amount of savings and need to withdraw the first amount of money from their IRA account at the age of 70 and a half, but do not need the money, can avoid paying taxes if they donate the money before December 31, 2011. The donation amount is limited to no more than $100,000 and must be transferred directly from the IRA account to a qualified charity. Those whose adjusted pre-tax gross income in 2011 was less than $28,250 (less than $56,500 for couples) can enjoy a tax deduction of up to $1,000 per person if they contribute retirement funds to an IRA or 401(k) retirement account.