An Essential Retirement Tool

Robert Valentine: As the first wave of the Baby Boomer generation begins to enter retirement this year, the focus on a comprehensive retirement plan has never been more prevalent. And as 2005 saw no reform in the current Social Security administration, personal savings are even more important.

Most financial professionals agree that a comprehensive retirement plan should include some sort of employer sponsored retirement plan such as a pension plan or a 401(k). But they should also include your own personal savings plan, including an Individual Retirement Account (IRA).

There are two major types of IRAs available. Different IRAs apply to different circumstances in your career and your financial plan. The advice of a financial professional is crucial in choosing the right one.

Traditional IRA:
-You don't pay taxes on your earnings until the time you withdraw from your account.
-You can contribute up to $4000 a year.
-Over age 50 "catch-up" provision allows you to contribute up to $5000 a year.
-The ability to deduct contributions from your taxes depends on your filing status, adjusted gross income, and whether you're considered an "active participant" in another account.

One of the drawbacks of a Traditional IRA is that you cannot make any more contributions during or after the year you turn 70 ½ years old. That same year, you must also start taking required minimum distributions from your account.

There are certain withdrawals you can make from a Traditional IRA without penalties, including qualified higher education expenses. One's ability to deduct contributions to a Traditional IRA

from their income taxes are subject to income limitations. Non-qualified withdrawals made prior to age 59 1/2 will be treated as ordinary income and assessed a 10% penalty. Always check with your financial professional before withdrawing from an IRA.