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IRA Retirement Options for Massachusetts Clients

Our Massachusetts clients who are not covered by retirement plans (such as 401k’s or 403b’s) often request clarity regarding retirement account options. With April 15 just around the corner, we are glad to provide an update. First, we need to identify the various “vehicles” available. The basic plan is the Individual Retirement Account, or IRA. An IRA allows you to deposit up to $5,000 (or $6,000 if you are over 50) into a tax deferred account each year provided you meet certain criterion. The good news is that this reduces your taxable income by the amount you put in. Further, if you can pay the tax on the income, you can do a ROTH IRA, which has an income restriction for qualifying, however, has the added benefit of allowing tax free withdrawals – by you or your heirs. The monies can be invested in stocks, bonds, mutual funds, commodities, certificates of deposit or otherwise, so long as they stay within the host company’s IRA account.

You are allowed to convert IRA investments into ROTH IRA investments, however, there are income restrictions for 2009. This changes in 2010. See our prior blog articles on Roth IRA conversions and Roth IRA planning for more details.
You can also open a ROLLOVER IRA, which is simply converting qualified retirement monies in a 401k, 403b or other retirement account, into an IRA that you now can control the investments in.

There are also SEP IRAs and SIMPLE IRA’s for folks with their own businesses. They have various requirements, however, the SEP IRA allows up a contribution up to $49,000 and the SIMPLE IRA allows contributions up to $11,500 ($14,000 if over 50) The requirements and restrictions can seem daunting, however, T. Rowe Price, whose useful website I have included above, provides details for opening and funding each IRA. There are other helpful websites too: Charles Schwab and Company is excellent. Many of our clients’ companies use Fidelity for their 401k or 403b plans. They have individual account services too. The lowest cost fund family is generally Vanguard. And, as we discussed in our earlier blog article on long term investment strategies, costs are critical because they create a drag on monies that are invested for the long term.
It should be noted that this article is not inclusive of all retirement plans. Many of our clients have Keough profit sharing plans, for example. This article is simply a reminder of the basic retirement vehicles out there for clients who don’t have retirement plans at work. Nor is this article investment advice. We are simply reminding our clients to review their options with their tax investment professionals before April 15.