for Retirement with IRAs
Transcript, 2 minutes 40 seconds, for use during week of Feb.
Description: Penny and Susan discuss traditional and
Roth Investment Retirement Accounts.
Announcer: Invest Wisely comes to you from Iowa State University
Extension through a grant from the Investor Protection trust,
providing investor education on the web at: investorprotection.org.
Susan: Penny, we’ve talked about some ways to save for
retirement and this week I have some questions for you about
Individual Retirement Accounts. Just what are they
and why should I invest in one?
Penny: Individual Retirement Accounts, or IRAs as they’re
usually called are a good and easy way to save for retirement. And
an IRA is a good way to save for retirement in addition to your
401(k) plan you have through your job.
Susan: What do I need to know about IRAs before I decide to
Penny: There are two types of IRAs. The first is a traditional
IRA, which allows your earnings to grow tax deferred.
Susan: Then would I pay taxes on the money when I withdraw
Penny: Yes. And you must begin withdrawing from a traditional
IRA by age 70 and a half.
Susan: Can I deduct the contributions I make on my tax return?
Penny: Yes, if you’re not covered by a pension plan or
you meet an income test, you can deduct your contributions.
Susan: What’s the other type of IRA?
Penny: The second type is called a Roth IRA—it’s
named after a Congressman--and with these IRAs contributions
are always made with after-tax money. However, withdrawals
from a Roth IRA are tax-free if you withdraw them after you turn
59 and a half. Also, because you’ve already paid
tax on your contributions, you can withdraw your contributions--but
not your account earnings--at any time without a penalty or tax.
Susan: So . . . do you have to start withdrawing from a Roth
IRA like you do with the traditional one?
Penny: There is no requirement that says you have to make withdrawals
when you reach a certain age and you can contribute to a Roth
IRA after age 70 and a half. However, not everyone can
contribute to a Roth IRA--for the 2007 tax year, for example,
you couldn’t contribute if you were married filing jointly
and had an income of 166,000 dollars or more.
Susan: Thank you, Penny. This has been very helpful.
Penny: You’re welcome. And remember, for more information
visit the ISU Extension website at extension.iastate.edu and
look for ‘Invest Wisely.’