IRA FAQs

• How to invest in an IRA

  09/11/2011

  Other than putting your retirement money in a bank to earn low interests, you can open a brokerage IRA account and construct a diversified portfolio using ETFs or no load no transaction fee mutual funds.

  Keep in mind that the two most important factors in portfolio management are risk management and diversification. Risk managment means only investing the portion of capital that you are comfortable with losing into risk assets such as stocks and commodities. Diversification means investing in a wide array of asset classes that represent broad economic segments such as US stocks, developed country stocks, emerging market stocks, Real Estate Investment Trusts (REITs), commodities and bonds.

  For beginners or those who prefer simple and passive methods, you can consider strategic asset allocation which chooses a diversified array of ETFs or mutual funds and periodically re-balances the allocations (such as monthly, quarterly or annually).

  For active investors or those who are more risk averse (those who can not withstand big loss), you can consider tactical asset allocation which dynamcially adjusts allocations among a diversified array of ETFs or mutual funds peridocially.

  The page ETF or Mutual Fund Model Portfolios lists ETFs or brokerage specific no load no transaction fee mutual fund portfolios using asset allocation.

   

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• Where to open an IRA account

  09/11/2011

  You can open an account in almost any bank, a mutual fund company or a borkerage. You can invest in CDs, money markets, mutual funds, ETFs (Exchanged Traded Funds), stocks, bonds or even stock options.

   

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• IRA Withdrawal Rules

  09/11/2011

  • If you are under 59 1/2 years old
    • Traditional IRA: regular income tax + 10% penalty
    • Roth IRA:
      
      • Contributions: no tax and penalty;
      • Investment earnings: regular income tax + 10% penalty.
      • IRS considers the withdrawl in the following order: contributions, money converted from traditional IRA and then investment earnings.
  • If you are 59 1/2 years older
    • Traditional IRA: penalty-free for qualified distributions. Pay regular income tax.
    • Roth IRA: qualified distributions: at least five year conversion from traditional IRA or start of an account. No income tax and no penalty for qualified distributions.

   

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• What is the IRA contribution limit?

  08/30/2011

  The following are 2010 contribution limits:

  If you're

  • Yonger than 50,  your 2010 contributions to a traditional IRA or a Roth IRA are limited to $5,000 or the total of your taxable compensation, whichever is smaller.
  • 50 or older, you are allowed to have catch up contribution: up to an additional $1,000 for a total yearly contribution of $6,000;

  Special limit for Roth IRA contribution:

  • To be qualified for the full contribution, your modified adjusted gross income must be less than $105,000 if you're single, or $167,000 as a married couple filing jointly. If you earn slightly above those amounts, you may be able to make smaller contributions, which phase out after $120,000 and $177,000, respectively.

   

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• What is a Roth IRA?

  08/30/2011

  A Roth IRA, similar to a traditional IRA, is a retirement savings account that allows your money to grow tax-free.  Unlike a work place retirement account (401k or 403b, for example), you fund a Roth IRA with after-tax money. Any return in your Roth IRA will not be taxed, even when you withdraw from your account at retirement (with certain age requirement).

  However, to open a Roth IRA, you have to meet certain requirements in your annual income.

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• What is a Traditional IRA?

  08/30/2011

• What is an IRA?

  08/29/2011