Individual Retirement Accounts (IRA)
An Individual Retirement Account (IRA) allows one to put away 100% of pay, to an annually determined maximum. (Deleted the following phrase: “$5,000 per spouse, per family.”
Contributions are deductible from federal taxes.
Withdrawals prior to age 59 ½ incur a 10% tax penalty, plus regular income tax. I.R.A. contributions are not always deductible if a person or his/her spouse participates in a qualified retirement plan at work.
Withdrawals prior to age 59.5 are allowed for certain limited exceptions:
- You were permanently or totally disabled
- You were unemployed and paid for health insurance premiums
- You paid for college expenses for your self or a dependent
- You bought a house (The limitations to this exception are as follows: you did not own a home in the previous two years, and only $10,000 of the retirement distribution qualifies to avoid the tax penalty.)
- You paid for medical expenses exceeding 7.5% of your adjusted gross income