Here is a list of what you might need to do before 2012 to ensure that everything is in order with your IRA.

10 IRA Tasks To Do Before The Year End

by Robert Powell
visit MarketWatch to view the complete article

1. Take your required minimum distribution

Make sure all RMDs are taken for the year.

“Look at all owned IRA accounts and employer plans for individuals age 70 ½ or older this year, as well as at inherited IRAs, employer plans and Roth IRAs,” said Beverly DeVeny, an IRA technical consultant with Ed Slott and Company.

“Beneficiaries, no matter what their age, must take distributions from all inherited accounts beginning in the year after the death of the account owner,” she said, adding that inherited accounts must be split before year end so beneficiaries can use their own life expectancies to calculate their RMDs.

2. Check for excess contributions

It might seem unlikely, given that the average IRA contribution is $3,798, but it’s possible that you contributed too much to your IRA during the year. If so, remove any excess contributions before year end. You will be charged a 6% penalty for excess contributions, said Lustberg.

The maximum amount of an annual IRA contribution for a specified tax year, and whether or not your contribution is tax deductible, varies depending on a number of factors related to eligibility rules, according to Fidelity Investments. In 2009, the maximum allowable contribution to an IRA is the lesser of 100% of eligible compensation or $5,000 in 2009, and $6,000 for those age 50 or older.

3. Is everything in place?

Take nothing for granted when it comes to your IRA. “Before year end, double check on all IRA funds that moved during the year,” DeVeny said. “Make sure that IRA funds went into IRA accounts, not non-IRA accounts or Roth IRAs and be sure that Roth IRA funds went into Roth IRA accounts. Look for any unexplained distributions during the year.”

4. Can you do a stretch IRA?

Check whether your IRA custodian or 401(k) plan administrator will allow for the so-called “stretch” for beneficiaries, said Ben E. Connor, an attorney with Connor Law Firm.

The stretch means that beneficiaries can use their own life expectancy for distributions. In addition, check whether the custodian or plan administrator will accept a durable power of attorney, and disclaimers.

“The answer to these questions will have substantial impact on the success of their estate plan,” Connor said. (If the custodian or 401(k) plan administrator doesn’t accept a durable power of attorney or disclaimer, you might consider another custodian or plan administrator.)

5. Who’s your beneficiary?

Here’s some well-worn but can’t-be-repeated-often-enough advice: Review your beneficiary designations. Make sure there is both a primary and a contingent beneficiary named on the beneficiary designation form.

“If there is no beneficiary named, the IRA proceeds will go to the estate and lose the tax advantage of the stretch,” said Connor. “If there is no contingent beneficiary, and the primary beneficiary has died and no new primary beneficiary has been named, then the assets also go to the estate with the same negative result.”

It’s especially worth checking your beneficiary designations if you’re divorced, recently or ever. “Make sure your ex-spouse has been deleted as a beneficiary, unless you want them to remain as a beneficiary,” said Connor. “The U.S. Supreme Court has recently ruled that the beneficiary named on the beneficiary designation form trumps divorce.”

Connor also advised against naming a “living trust” as the beneficiary. “A living trust should not be the beneficiary because the living trust must qualify as a ‘designated beneficiary’ to receive favorable stretch and tax treatment,” he said. “I find that most living trusts do not qualify, or lose their designated beneficiary status through later changes to the trust.”

Make sure your custodian has a written copy of your beneficiary designations.

6. One last chance for Roth conversions

If you plan to do a Roth conversion , “the funds must leave the IRA by Dec. 31 to be reported and taxable as a 2011 distribution and conversion,” DeVeny said. “The funds can then be rolled over to the Roth IRA up to 60 days after they are received by the account owner - up to March 1 if the distribution was received on Dec. 31.”

Contrary to what some might believe, you do not have until April 15, 2011 to do a 2010 conversion, DeVeny said.

Here’s another reason why you might want to convert some or all of your IRA to a Roth IRA: according to Connor, the Roth IRA could fund a credit shelter or by-pass trust.

“A Roth IRA is usually not subject to the trust tax rate,” he said. Also, review your power of attorney to make sure the agent has authority to recharacterize the Roth, if needed, Connor said.

Remember, too, that anyone can convert their traditional IRAs to a Roth IRA in 2010 regardless of income. What’s more, you can pay the taxes over two years, instead of one.

7. Turn wealth into income

Right about now, the Social Security Administration is sending you a report that tells you how much income you’ll receive in today’s dollars when you retire. Write down that number on a piece of paper.

Now, total up the value of all IRAs and 401(k)s in your household and multiple that number by 0.04. That number is the amount some experts say you could withdraw from your retirement in today’s dollars.

Now, add that number to your Social Security benefit figure, and then subtract that amount from your income. The results are roughly the amount of money you’ll need from other sources - such as work, pensions, reverse mortgages, life insurance or inheritances - to enjoy a lifestyle similar to what you have today.

For some, the best way to close the gap will be to contribute more to their IRAs and 401(k)s, work longer, and lower their standard of living.

8. Review your investment plan

Consider updating your investment policy statement or plan. “Make sure your asset allocation remains appropriate given your financial goals,” said Michael L. Gay, a certified financial planner with Portfolio Solutions.

Also, rebalance your IRA if you haven’t done so within the past year. It’s best to rebalance your IRA in a holistic manner. That is, look at all your assets in all your accounts, taxable and tax-deferred.

In many cases, consider putting your fixed-income investments in your tax-deferred accounts and those investments that produce capital gains and dividend income in your taxable accounts. And while you’re at it, check whether you’ve bought or sold any inappropriate investments in your IRA accounts.

“Since IRAs are tax-deferred vehicles, it makes no sense for them to hold ‘tax-preferenced’ investments such as municipal bonds and annuities,” said Gay.

Gay also suggested using your RMDs to rebalance. It could save on transaction costs.

9. Roll old 401(k)s to an IRA

If you have one or more 401(k)s sitting with former employers, consider rolling that money over to an IRA. “You’ll generally get better investment choices, lower costs and more control of your investment assets,” said Gay.

10. Recharacterize your Roth IRA

If you converted a traditional IRA into a Roth IRA and now realize that your income taxes were higher than expected due to the conversion, or you’re short money to pay the income tax or you’re unwilling to pay the income tax, consider a recharacterization, DeVeny said. That is, consider putting the money in the Roth IRA back into your traditional IRA.

“This is the last year that some individuals must recharacterize,” DeVeny said. “Those who have no choice are individuals who converted in 2009 and whose modified adjusted gross income exceeded $100,000 or who were married filing separate.”

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

If you are thinking about rolling over your IRA here are some common mistakes to avoid.

Common IRA Rollover Mistakes

visit Investopedia.com to view the complete article

The 60-Day Rule

After you receive the funds from your IRA, you have 60 days to complete the rollover to another IRA. If you do not complete the rollover within the time allowed, or receive a waiver, or extension, of the 60-day period from the Internal Revenue Service (IRS), the amount will be treated as ordinary income in the IRS’s eyes. That means you must include the amount as income on your tax return, where any taxable amounts will be taxed at your current, ordinary income tax rate. Plus, if you did not reach age 59.5 when the distribution occurred, you’ll face a 10% penalty on the withdrawal.

One-Year Waiting Rule
Within one year, after you distribute assets from your IRA and rollover any part of that amount, you cannot make another rollover from the same IRA to another (or the same) IRA.

For example, imagine that you have two IRAs - IRA-1 and IRA-2 - and you make a tax-free rollover from IRA-1 into a new IRA (IRA-3).

Within one year of the distribution from IRA-1, you cannot make another tax-free rollover from IRA-1 or from IRA-3 into another IRA. However, you could roll funds out of IRA-2 into any other IRA, because you did not roll money into or out of that account within the previous year.

The once-a-year limit on IRA-to-IRA rollovers does not apply to eligible rollover distributions from an employer plan. Therefore, you can roll over more than one distribution from the same qualified plan, 403(b) or 457(b) account within a year. (Note: This one year limit does not apply to rollovers from Traditional IRAs to Roth IRAs, i.e. Roth conversions.)

RMDs Not Eligible for Rollover
You are allowed to make tax-free rollovers from your IRAs at any age, but if you are 70.5 or older, you cannot rollover your annual required minimum distribution (RMD), as a rollover of a RMD would be considered an excess contribution.

If you are required to make a RMD each year, be sure to remove the current year’s RMD amount from your IRA before implementing the rollover.

Same Property Rule
Your rollover, from one IRA or to another IRA, must consist of the same property. This means that you cannot take cash distributions from your IRA, purchase other assets with the cash and then roll those assets over into a new (or the same) IRA. Should this occur, the IRS would consider the cash distribution from the IRA as ordinary income.

Caution: When Not to Use a Rollover
If you are simply moving your IRA from one financial institution to another and you do not need to use the funds, then you should consider using the transfer method, instead of a rollover. A transfer is non-reportable, and can be done for an unlimited number of times during any period. A rollover leaves room for errors, including missing the 60-day deadline, losing the check and you are limited to the once per 12-month rule, discussed earlier.

Additional points
You can roll over funds from any of your own Traditional IRAs, but you can also roll over funds to your Traditional IRA from the following retirement plans:

• A Traditional IRA you inherit from your deceased spouse
• Aqualified plan
• Atax-sheltered annuityplan (section 403(b) plan)
• A Government deferred-compensation plan (section 457 plan)

Note that if rollover eligible amounts, from qualified plans, 403(b) plans or governmental 457 plans, are paid to you instead of processed as a direct rollover to an eligible retirement plan, the payor must withhold 20% of the amount distributed to you. Of course, you will receive credit for the taxes that were withheld. However, if you decide to rollover the total distribution, you will need to make up the 20%, out of pocket. If you want to avoid the withholding and the associated reporting requirements, a direct rollover is the method that should be used to effectuate your rollover from your qualified plan, 403(b) plan or governmental 457 plan account. A direct rollover is reportable, but not taxable. Plus, there is no 60-day window to worry about. Be sure to check with your plan administrator and IRA custodian regarding their documentation and operational requirements for processing a direct rollover on your behalf.

You might be able to move funds the other direction, too. That is, you may be able to take a distribution from your IRA, and then roll it into a qualified plan. Note, however, that your employer is not required to accept such rollovers, so check with your plan’s administrator before you distribute the assets from your IRA. Further, certain amounts, such as nontaxable amounts and RMDs, cannot be rolled from an IRA to a qualified plan

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

You can avoid taxes and penalties on an IRA distribution if you roll it over into a qualified retirement plan within 60 days.  There are however some exceptions that are outlined in the article below. It is important to understand these to ensure continued tax-deferred growth on your retirement assets.

Exceptions To The 60-Day Retirement Account Rollover Rule

by Denise Appleby
visit Investopedia to view the complete article

120-Day Exception for First-Time Homebuyers

Taxable distributions of up to $10,000 from your IRAs are not subject to the 10% additional tax (early-distribution penalty) if the IRA owner or a qualified family member is a first-time homebuyer and, within 120 days of receipt, the IRA owner uses the amount to pay for qualifying acquisition or rebuilding costs for his or her own or qualifying family member’s principal residence. If the amount is not used because of a cancellation or delay in the purchase or construction of the residence, the amount may be rolled over to the IRA within 120 days instead of the usual 60 days.

Automatic Waiver for Hardship
An individual may deliver distributed assets to a financial institution and intend the amount be deposited to his or her retirement account as a rollover contribution; but sometimes, because of an error, the amount is not credited to the retirement account within the 60-day period. If this happens to you, you receive an automatic extension of the 60-day period, providing all of the following requirements are met:

• The assets were delivered to your financial institution within 60 days after you had received the distribution.
• You followed the procedural requirements for rollover contributions that were established by your financial institution.
• The amount was not deposited to your retirement account because of an error made by the financial institution.
• The assets are deposited to your retirement account within one year after you received the distribution.
• The transaction clearly would have been a valid rollover contribution had the financial institution followed your instructions at the time of receipt.

Such errors can occur if you maintain multiple accounts with your financial institution, and a representative inadvertently deposits the amount to the wrong account, such as your regular checking account. To be sure your instructions are followed, check your account statement for accuracy, and contact your financial institution immediately if you detect any errors.

Non-Automatic Waiver Application
If you are unable to complete your rollover contribution because of certain circumstances beyond your reasonable control, you can submit an application to the IRS for a waiver or extension of the 60-day rule. When reviewing your application, the IRS determines whether you meet certain requirements by considering the following:

• Whether any mistakes were made by your financial institution, other than those described under this article’ssection “Automatic Waiver for Hardship”above.
• Whether the inability to complete the rollover was the result of death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or a postal error.
• How the distributed amount was used. For instance, if you received a check for the distributed amount, the IRS will want to know whether the check was cashed.
• How long it has been since the distribution occurred.

Additionally the IRS will look at whether you had any intention of rolling over the distributed amount at the time the withdrawal occurred. If the IRS determines that you didn’t have this intention, your request for waiver may not be approved. Also, before applying for a waiver of the 60-day rule, check to make sure the amount in question is rollover eligible. For instance, if the distribution occurred from an IRA from which another distribution was rolled over during the 12 months preceding the distribution in question, this second distribution is not rollover eligible.

In order to be considered for the waiver, you must submit an application for a private letter ruling (PLR) to the IRS and pay the applicable fee.

After reviewing your application, the IRS will issue a PLR to you indicating whether your application is approved. If it is, it will include the time limit within which the rollover contribution must be completed. If your application is not approved and you already deposited the amount to your retirement account, you may need to remove the amount as a return of excess contribution (which you can read more about inCorrecting Ineligible (Excess) IRA Contributions - Part 3).

Ensuring Correct Reporting
If you qualify for any of the exceptions explained here - that is, a cancellation or delay in the purchase or construction of a first home is the reason you didn’t use the distributed amount within 120 days for first-home costs; you were eligible for the automatic waiver within one year of the distribution; or your application for extension to the IRS was approved - you must report the amount on your tax return as nontaxable to exclude the amount from your income and avoid the penalty. This is done by including the amount on the applicable line of your tax return.

If you have failed to roll over the amount within the 60-day period and don’t qualify for these exceptions, you must include any taxable amount of the distribution as income, and pay the applicable taxes.

Consult with your tax professional for assistance with determining the taxable portion of your distribution and including the amount on your tax return. Your tax or legal professional should also be able to help you with determining your waiver eligibility and the application process.

You can avoid taxes and penalties on an IRA distribution if you roll it over into a qualified retirement plan within 60 days.  There are however some exceptions that are outlined in the article below. It is important to understand these to ensure continued tax-deferred growth on your retirement assets.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

The following article discusses when a non-deductible IRA contribution makes sense for investors depending on their individual situations and goals.

Does a Non-Deductible IRA Make Sense For Your Situation?

To view full article, visit Figuide

If you find yourself in the position of having too high of an income to make a deductible contribution to your IRA for the year ($110,000 for joint filers in 2011, $66,000 for Single and Head of Household), you may be wondering if it’s a good idea to make a non-deductible contribution to your IRA.

There are two opposing camps on this issue, and the deciding factor is how you’re intending to use the funds in the near term.

When It’s a Good Idea

If you’re intending to convert your IRA to a Roth and your income is too high to just make the contribution directly to the Roth account, the non-deductible IRA may be the right choice for you. This way you’re effectively working around the income limitations of the Roth contribution ($179,000 for joint filers in 2011 or $122,000 for single or head of household filers).

You also have more funds available in your IRA account, which provides you with the ability to take advantage of economies of scale - certain mutual funds have higher minimum purchase amounts, for example. Since the money is in an IRA you don’t have to track holding periods, non-qualified dividends versus qualified dividends, and your paperwork is reduced.

In addition, depending upon your state laws your money may be protected against creditors since it’s part of an IRA.

When It’s a Bad Idea

If you’re not planning to convert this IRA to Roth, you’re effectively increasing the tax cost of your investment gains (under today’s law). Since withdrawals of investment gains from your IRA are taxed at ordinary income tax rates (up to 35% under today’s rates), you’re effectively giving yourself a tax increase over the capital gains rate which is 15% maximum these days.

Instead of making a non-deductible contribution to your IRA, you could just make your investment in a taxable account. Then within this account you could make investments geared toward long-term gains rather than income or dividends, therefore deferring tax until you sell the investment. And when you do sell the investment it will be taxed at the currently much lower capital gains rate versus the ordinary income tax rate (which would be applied if you made your contribution in the IRA).

Conclusion

So- depending on what you’re planning to do with the account, a non-deductible contribution could be a good idea or a bad idea. You will have to make that call. Hopefully the information above will help you with your decision.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

The following article discusses what a custodial IRA is and how it can be beneficial in helping your children learn about investing. The knowing what a custodial IRA is, your can help your children start a nest-egg of their own for retirement.

The Benefits of Custodial IRAs for Your Children

To view full article, please visit Military Money.

Would you like to help your children accumulate more than $1 million in tax-free retirement assets with a relatively small investment?

You can do exactly that with a highly effective but often overlooked financial strategy: Open a Roth IRA for your child!

The Rules

A child can open an IRA (traditional or Roth) only if he or she has legitimate “earned income” through self-employment or W-2 wages. This money can come from typical jobs such as cutting grass, delivering newspapers, bagging groceries or working at a fast-food restaurant.  A child that performs real work or duties in a family business- data entry, filing, cleaning the office-also qualifies. (It is a good idea to pay any children working for the family business periodically- say, monthly- by check and to keep a time sheet.)

A child, regardless of age, can use this income to fund an IRA subject to the lesser of $5,000 or 100 percent of earned income. As with all IRAs, you have until April 15 of the following year to put the money into the account.

Some children may be reluctant to turn over their hard-earned babysitting or life guarding money to mom and dad to fund an investment they won’t be able to use for many years. Fortunately, parents and grandparents can give kids some or all of the IRA funding money as gifts, allowing the children to keep and/or spend what they make. Any money gifted in this manner must be aggregated with any other gifts and are subject to the $11,000 annual gift exclusion.

If the child is a minor, the account must be set up as a “custodial IRA” with the child’s social security number on the account but an adult parent or guardian shown as the custodian. Once the child turns 18, the custodial feature may be removed.

The Benefits

How powerful is this savings tool? Let’s look at two examples:

Example #1: Johnny, age 13, has a part-time paper route and earns $1,400 per year. His parents open a custodial Roth IRA for Johnny and fund it through gifts limited to the amount of his earned income each year. If Johnny keeps the paper route until age 18 (five years of funding), continues to earn $1,400 per year and never puts another dime into the Roth IRA, it will grow to $305,787 by the time he turns age 65(assuming an eight percent annual rate of return). Not bad for a total investment amount of only $7,000!

Example #2: Sarah, age 15, works for her mother, a real estate agent. She helps her mother with data entry and promotional fliers. Her mother can pay her what she would reasonably pay an outside employee for the same duties (say, $15 per hour). Sarah works 300 hours each year until age 18, earning $4,500 per year. Sarah contributes $2,000 to a custodial Roth IRA and her mother matches that with a $2,000 gift for the total of $4,000 per year. In four years, she will accumulate $18,024 in her Roth IRA (assuming an annual eight percent average annual rate of return). If Sarah continues to work for her mother through college (an additional four years) and make additional contributions, the account will grow to $42,546. If she stopes and lets the money grow tax-free until age 65, she will have amassed $1,164,341. If she continues to contribute $4,000 per year after college until age 65, she will have a whopping $2,482,673-all available tax-free!

The Caveats

First, remember that the money must come from legitimate earned income, so it will be difficult for a very young child to qualify unless he or she is a child actor or model.

Second, some financial institutions are unfamiliar with these rules and may be hesistant to open a custodial IRA or ask for verifiable W-2 income. If the bank, brokerage house or mutual fund company seems reluctant, as to speak with a manager to resolve the issue. If they still refuse, take your business to another institution, since there are plenty that will help you.

Third, since the time frame is so long on this investment, use a growth-oriented stock mutual funds for maximum long-term appreciation.

Roth IRAs for working children are an immensely powerful wealth-building tool and an excellent way to teach kids about money and investing. If your situation qualifies, open one today!

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

The following article discusses what a Roth IRA is and how it can be your best option for your retirement savings account.

What is a Roth IRA?

The view full article, please visit YourRothIRAGuide.com

Saving for retirement is something most people don’t want to think about when they are in their twenty’s but that is the perfect time to begin the process. The more money an individual can save for retirement, the more financially secure the golden years will be. There are mechanisms in place to help plan and save for retirement and the Roth IRA is one of them.

A Roth IRA account is an Individual Retirement Arrangement allowed under the United States tax law and named for its legislative sponsor Senator William Roth, late of Delaware. The Roth IRA has existed since 1998. A Roth IRA is subject to the same rules as a traditional IRA but with some exceptions.

A Roth IRA account can simply be a savings and/or investment account or an annuity and it must be designated as a Roth IRA when it is opened. Contributions to a Roth IRA account must be made from money earned through employment efforts. The effort can be self employment or employment through a legal business. The income can be wages, tips, salaries, bonuses, and professional fees. The Roth account holder will be required to pay taxes on contributions. The benefit is no taxes are required to be paid on earnings or on the principal that is withdrawn from the account at any time. Investments in a Roth IRA can be used for a variety of investments such as stocks, bonds or certificates of deposit. The investor must not exceed established income requirements to contribute to a Roth IRA account, the fund owner must not exceed maximum income criteria. The limits change year to year. A Roth IRA account holder can contribute up to a specified amount between 02 January and the tax deadline of 15 April of the following year. For 2011, the maximum contribution is $5,000. The contribution limit changes with inflation and account holders age 50 or older have the ability of making additional catch up contributions. For 2011, that is $1,000. You will not be able to contribute to a Roth IRA if your income exceeds the income limit. You will be able to continue contributions when your income decreases or the limit is raised.

If one spouse has a Roth IRA account, the other can contribute to the account provided the couple files a joint tax return. Anyone at any age can open a Roth IRA account. Minors can establish and contribute to a Roth IRA provided the minor has verifiable income.

Contributions can be made to a Roth IRA account as well as a 401(k) or 402(b) plan without any contribution effect on either account. A traditional IRA converted to a Roth IRA account can still reveive the current contributions during the year of conversion.

A Roth IRA account can be opened with any Roth IRA providers and they might be a bank, mutual fund companies, brokerage firms or insurance companies. Be sure to compare fee’s providers charge before choosing a Roth IRA account provider.

Facts about IRAs

The following article discusses what IRAs are and the difference between the different types of IRA accounts that are available to investors.

To view the full article, visit Monster Money

Individual retirement accounts (IRAs) were established by the federal government and given special tax treatment primarily to encourage people to save for retirement. With an IRA, you can set aside a certain amount of money every year in a special account managed by a bank or other financial institution, or by a mutual fund, life insurance company or stockbroker. IRA accounts can be invested according to your choice of investment options. Your money grows tax-deferred, and in some cases, even tax-free. While this article explains some of the different types of IRAs, you should consult with your own tax or financial adviser to see if a particular type of IRA is right for you.

Traditional IRAs

A traditional IRA is a personal savings account that gives you tax advantages for saving for retirement. Contributions to a traditional IRA may be tax-deductible, either in whole or in part, depending on your modified adjusted gross income — a figure used by the Internal Revenue Service (IRS) that’s arrived at by first deducting some adjustments from your total income and then adding certain items back.

You can contribute to a traditional IRA for each year you receive compensation and have not reached age 70½. For any year in which you do not work, contributions cannot be made to your IRA unless you receive alimony or file a joint return with a spouse who has compensation.

There is a limit to how much you can contribute each year. For tax years 2005 through 2007, you can make contributions to a traditional IRA of up to whichever amount is smaller: (a) your taxable compensation for the year or (b) $4,000. In 2008, the $4,000 limit will be raised to $5,000. In addition, if you are 50 or over at the end of a tax year, you may contribute an extra catch-up amount — an additional $1,000 in 2006 and beyond.

You are not required to make a contribution to only one type of IRA during the year. If you qualify, you can divide your permissible contributions between a traditional IRA and Roth IRA.

There is no upper limit on how much you can earn and still contribute to a traditional IRA. But there are some rules that limit how much you can deduct. Information regarding employer retirement plans and other rules for IRAs can be found in IRS Publication 590, “Individual Retirement Arrangements (IRAs).”

The investment earnings in your IRA account won’t be taxed until you withdraw them. In most cases, IRA account holders withdraw their money upon or after retirement, when they are in a lower tax bracket than at the time the money was invested.

You can withdraw or use your traditional IRA assets at any time, but those withdrawals will be treated as income for tax purposes. Moreover, you may be subject to an additional 10 percent penalty tax if you make withdrawals prior to age 59½ unless there are special circumstances, such as death, a disability, certain higher education expenses or a qualifying first-time home purchase.

With a traditional IRA, you must start withdrawing money from your IRA by April 1 of the year following the year in which you reach age 70½, and each year you must withdraw a required minimum distribution or face a penalty. The IRS provides formulas for figuring out this required amount based on varying circumstances.

One of the benefits of IRAs is that it is easy to move retirement savings from one account to another without tax penalties. IRA funds can be moved in the following ways:

• Rollovers: With a rollover, you receive assets from your IRA (or other qualified retirement plan) and then deposit those assets in another IRA (or other qualified retirement plan). If you receive a lump sum payout from a company pension plan, perhaps because you are leaving that company, you can avoid paying taxes on the lump sum by rolling it over into an IRA — but you must do so within 60 days of receiving the funds unless you receive a waiver. A qualified employer-sponsored retirement plan may, at your request, make a “direct rollover” by distributing your plan assets directly into another plan in which you participate or another IRA you’ve set up. You may make only one rollover from any single traditional IRA to another traditional IRA in any 12-month period, but there’s no limit on your ability to roll over amounts from or to other traditional IRAs in any given time period.
• Conversions: You can move (”convert”) amounts from a traditional IRA into a Roth IRA, depending on your tax filing status and modified adjusted gross income for the year. This is discussed further under Roth IRAs below.
• Transfer from One Custodian to Another: You can transfer your IRA to another institution, perhaps to take advantage of a better deal or a promising mutual fund. To switch institutions, simply request a direct IRA-to-IRA transfer from one institution to the other. A transfer is not the same as a rollover. With a rollover, you take receipt of your funds before depositing them in another account. With a transfer, you never receive money; instead, the money goes directly from one IRA account into another. So the 60-day period doesn’t apply. Also, because this is not a rollover, it’s not subject to the 12-month waiting period required between rollovers.
• Transfers Related to a Divorce: An interest in a traditional IRA may be transferred as part of a divorce settlement. This type of transfer is generally tax-free.

Roth IRAs

A Roth IRA operates differently from a traditional IRA. Key differences include:

• Contributions to a Roth IRA Are Not Tax-Deductible: The distributions (including earnings on your contributions) are not included in income and are potentially tax-free. Because your contributions to a Roth IRA are not deductible and have already been taxed as income, you can withdraw your contributions, tax-free, at any time within certain limits — just as you can withdraw money from your bank account without paying taxes on it. The earnings on your contributions, however, are treated a little differently. Withdrawals of earnings from a Roth IRA can generally be made anytime, free of tax or penalty, if it has been five taxable years since you first opened the Roth IRA and if the withdrawals are made: After age 59½, on account of death or disability or for a qualified first-time home purchase up to $10,000 (lifetime maximum). If a withdrawal does not meet these requirements, it may be taxable and may also be subject to a 10 percent penalty if made before age 59½.
• Withdrawals Are Not Required: Unlike the traditional IRA, you may leave assets in a Roth IRA for as long as you live. You may allow your assets to continue to accumulate tax-free and/or be passed to heirs tax-free. Contributions can be made to a Roth IRA as long as you are earning income, even after you reach age 70½.

Here is more information about Roth IRAs:

A Roth IRA is generally available only if your adjusted gross income is less than $160,000 for joint filers or $110,000 for single filers. Check with your financial or tax adviser to see if you are eligible.

In general, if you contribute only to a Roth IRA, your contribution limits are the same as for a traditional IRA. This includes “catch-up” contributions for those 50 or older. However, if your modified adjusted gross income is above a certain amount, your contribution limit is gradually reduced. The amount you can contribute each year to a Roth IRA may also be limited if you contribute to both a Roth IRA and a traditional IRA.

A traditional IRA or other retirement account can, under most circumstances, be converted, partially or entirely, to a Roth IRA, if your modified adjusted gross income is less than $100,000 in the year of conversion. If you are married, you may convert to a Roth IRA only if you file taxes jointly. The converted amount (excluding nondeductible contributions) is subject to income tax in the year of the Roth IRA conversion. You can also roll over a Roth IRA into another Roth IRA.

Choosing Between a Traditional and Roth IRA

If you are eligible for both traditional and Roth IRAs, how do you choose between the two options? Or how do you decide how to apportion your retirement savings between the two? Here are some questions to consider:

• How long do you expect to keep earning money? If you’ll be working beyond age 70½, you will have to begin withdrawing from a traditional IRA and paying tax on those withdrawals while still paying income tax on your compensation.
• What tax bracket do you expect to be in when you start withdrawing money? If you expect to be in a lower tax bracket than you are now, a traditional IRA enables you to save money up front by deducting your contributions and put off paying some taxes until later.
• Do you plan to use up your IRA assets during your lifetime or leave them to your heirs? A Roth IRA can be used for estate planning, to build up assets for those who will inherit. While a traditional IRA can be inherited, your heirs and beneficiaries would probably gain more from a Roth IRA. Without mandatory withdrawals, your account can keep accumulating income, tax-free, until your death, when it will pass to the person you’ve designated.

IRA contributions may normally be invested in mutual funds, annuities, CDs, stocks or bonds. Which investment selection is most appropriate for you depends on your personal objectives and the amount of risk you wish to take. But one certainty applies to all types of investments: The sooner you invest, the larger your IRA will grow and the sooner you’ll be on your way to a comfortable retirement. Talk with your tax or financial adviser about choosing the plan that’s right for you.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

Many people have questions about IRA contributions, especially this time of year.  Contributing to an IRA may be tax deductible and you have until April 18, 2011 to make a contribution for the 2010 tax year.  The following information provided by the IRS provides additional details and information.

Taxpayers Have Extra Time to Make a Contribution to Their IRA This Year

visit IRS.gov to view the complete article

This year, you have a few extra days to make contributions to your traditional Individual Retirement Arrangements. That’s because Emancipation Day, a legal holiday in the District of Columbia, will be observed on Friday, April 15, 2011, which moves the due date for filing your tax return and making contributions to your 2010 IRA to Monday, April 18, 2011.

Here are the top 10 things the Internal Revenue Service wants you to know about setting aside retirement money in an IRA.

1. You may be able to deduct some or all of your contributions to your IRA. You may also be eligible for the Savers Credit formally known as the Retirement Savings Contributions Credit.
2. Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means contributions for 2010 must be made by April 18, 2011. Additionally, if you make a contribution between Jan. 1 and April 18, you should designate the year targeted for that contribution.
3. The funds in your IRA are generally not taxed until you receive distributions from that IRA.
4. Use the worksheets in the instructions for either Form 1040A or Form 1040 to figure your deduction for IRA contributions.
5. For 2010, the most that can be contributed to your traditional IRA is generally the smaller of the following amounts: $5,000 or $6,000 for taxpayers who were 50 or older at the end of 2010 or the amount of your taxable compensation for the year.
6. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit equal to a percentage of your contribution.
7. You must use either Form 1040A or Form 1040 to claim the Credit for Qualified Retirement Savings Contributions or if you deduct an IRA contribution.
8. You must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA.
9. You must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment to contribute to an IRA. If you file a joint return, generally only one of you needs to have taxable compensation. However, see Spousal IRA Limits in IRS Publication 590, Individual Retirement Arrangements for additional rules.
10. Refer to IRS Publication 590, for more information on contributing to your IRA account.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

 

In addition to getting your finances organized, keep these 10 important tips in mind when preparing for the New Year.

10 year end financial planning tips you don’t want to miss

by Alan Haft

visit alanhaft.com to view the complete article

1.)  Take your required minimum distributions (RMDs).

If you’re not yet retired, this first thought likely won’t apply to you but who knows? With a little of this knowledge, you just might score some points with maybe your folks who just might be in retirement. Score some points and you just might score that new Nano you’ve been hoping for.

2.)  Spend the balance of your Flexible Spending Account (FSA).

If you participate in an FSA for either health or dependent care, check to see if the plan has implemented the new 2½ month extension provision, which allows 2010 FSA money to be used for expenditures through March 15, 2011. If the plan doesn’t have the extension, be sure to use up any balances before the end of the calendar year or they will be forfeited. One way to do so: stock up on over-the-counter medicines for next year.

3.)  Make last-minute charitable contributions.

Maximize itemized deductions by making donations in the form of cash, property, or appreciated stock. The latter could help you avoid capital gains taxes too.

4.)  Make an extra mortgage payment.

Making that one extra payment will, over time, cut the amount of interest you’re paying on your mortgage and actually reduce the number of years you’ll need to make payments before your house is free and clear. It will also help you maximize itemized deductions. Depending on whether or not you see paying your house off as a good thing, this thought could make a tremendous difference in your long-range plans.

5.)  Consider making deductible business purchases by the end of the year.

If you’re self-employed, and know you’ll need to buy deductible business-related items in the following year, you may want to buy them now to maximize your deductions in the current year (and take advantage of holiday sales).

6.)  Think about gifting.

At the time of this writing, you can gift up to a total of $13,000 per year (per person) to as many people as you want. That $13,000 may be given to one person, or distributed to any number of individuals. Your taxable income will be reduced by the amount that you gift.

7.)  Review and balance your capital gains and losses.

Make note of capital gains you’ve realized this year from the sale of stocks or mutual funds. Also find out if any of your mutual funds will be distributing capital gains. When you’ve added up your gains, check to see if there are any losses you can carry forward from previous years to offset these gains. If there aren’t, consider selling underperforming securities. Taxes should never be the sole reason you buy or sell investments, but it may be possible to improve your tax and your investment situations at the same time. Think of it as being a good time to “clean out the closet.” Especially with the likelihood that tax rates are going up next year, this could be my list’s most important idea to pay attention to.

8.)  Consider increasing your final 401(k) contribution.

If you haven’t already contributed the maximum of $16,500 (an additional $5,500 for those 50 and older) to your 401(k), consider increasing your contribution amount from your final paycheck. You have until December 31^st to make your final contribution for the year.

9.)  Open and fund a 529 plan college savings account.

Have kids? Have no idea how you’re going to get them through college? A 529 can help. For those that aren’t aware of it, a 529 plan account offers high maximum contribution limits and significant tax benefits. Money in the account can grow tax-free for years. And, withdrawals are tax-free if used for any number of expenses related to higher education. But some people are using them for estate planning as well, since the money you put into a 529 plan account is considered “a gift.” You’re allowed to contribute up to $55,000 - which is considered five years’ worth of gifting - at one time. The rule is based on a calendar year, so if you make a contribution in December, one of the five years (or $13,000) is applied to the current year. The balance of your gift will carry over and be credited in subsequent years ($13,000 per year).

10.)  Make Your IRA contributions.

You can make IRA contributions through April 17th, but why not consider doing it now so you don’t forget? For 2010 (year of this writing), the IRA contribution limit is $5,000, or and extra $1,000 if you reach age 50 before the end of the year.

One last very important point: I have known many people - especially business owners (sole proprietor, C Corporation, S Corporation, and others) - who amazingly have not set up programs such as Keoghs, SIMPLE IRAs, 401(k)s, etc. What a shame! The ability to “take income off the top” and place it into a qualified plan is a true misfortune. With enough time until the end of the year, it is still possible to set up a qualified plan. I cannot stress this enough: If you have no qualified plan for your business, you absolutely, positively need to make inquiries as to whether or not you can and which one is best for you. Speak to your accountant or a financial advisor. This could be the best thing you do for yourself before popping that cork!

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

Most people do not have the same job over the course of their career. When they switch jobs, they will most likely need to look into IRA Rollovers. In the article below, you will learn about IRA Rollovers and if they are something that might benefit you in the future.

IRA Rollovers

Article From: Money-Zine.com

In this article we are going to discuss IRA rollovers.  We’ll going to start off by briefly discussing why an IRA rollover might be necessary, as well as provide you with a definition of a rollover.  We’re then going to explain the difference between a rollover and a transfer, and finish up with some of the rollover rules you need to be aware of to prevent you from encountering any income tax penalties.

What is an IRA Rollover?

Lifetime employment is a thing of the past, and so there are two things you can be pretty sure of:

• You’ll reach a point where retirement planning becomes a priority.
• There is a good chance that you won’t finish your career with the same employer that you started your career with.

Additional Resources

IRA Rollover IRA Withdrawals IRA Contribution Limits IRA Contribution Limits 2004 and 2005

While some companies will allow you to keep anyretirement savings you have with them in their plan’s account until you reach retirement age, there is a very good chance you’ll lose some flexibility in how that money is invested.

You may also wish to consolidate your retirement plans so that you don’t need to worry about managing several accounts.  If that’s true, then one day you may need to make a decision concerning an IRA rollover.

IRA Rollover Defined

An IRA rollover is a tax-free distribution from one retirement account that is contributed to an IRA.  There are several kinds of retirement accounts that can be rolled-over into a traditional IRA, including another traditional IRA, an employer’s qualified plan such as a 401(k) plan, deferred compensation plans (section 457 plan), and a tax-sheltered annuity plan such as a 403(b).

You should always check with your plan administrator to make sure you can take a rollover from your account.

IRA Rollovers versus Transfers

There are two ways of moving money between financial institutions - performing a transfer or doing a rollover.  Most of the time, it is far easier to do a transfer than a rollover - especially if your existing plan will accommodate the request.

With a transfer you would make arrangements with another financial institution to receive funds from your current institution.  The receiving institution then sends a request to the disbursing institution requesting a transfer of funds.  This is usually accomplished via a physical check.

This type of transaction does not have to be reported to the IRS, and requires very little work on behalf of the account holder’s part.  Transfers are sometimes referred to as direct rollovers, and are not subject to the 20% IRS withholding tax - which we discuss later on.

With a rollover, the retirement funds are distributed from the disbursing institution directly to the former account holder.  This means a check is sent directly to an individual, not another institution.

Unlike a transfer, a rollover is reported to the IRS.  This is to ensure that the individual receiving this money abides by the rollover rules, and deposits the money into another qualifying retirement account in a timely manner.

60-Day Rollover Rule

In general, you have 60 days to make the rollover contribution after receiving the distribution from your traditional IRA or an employer’s qualifying plan such as a 401k or 403b.  The IRS might waive the 60-day requirement if you can demonstrate that a significant hardship or event occurred that was beyond your control.  If you want to try and get a waiver, a request for a ruling must be made and a $90 fee may apply.

Rollover Extensions

You can qualify for an extension of the 60-day rule if the deposit becomes frozen at any time during the 60 days.  There are two specific rules that extend the rollover timeline.  Both of these rules have to do with frozen deposits - deposits that are held with banks that become insolvent or bankrupt.If the distribution becomes a frozen deposit, then the time during which the money is frozen does not count towards the 60 day timeframe.  Also, the 60 days cannot expire less than 10 days after the deposit is no longer frozen.

Rollover Withholding

If an eligible rollover is paid directly to you, then the distribution may be subject to 20% withholding. This rule applies even if you are merely rolling it over into a traditional IRA.  To avoid any tax penalties, you need to rollover 100% of your account money withdrawn into the receiving account

Rollover Withholding Example

Let’s take a closer look at this withholding rule.  Let’s say that you have $10,000 in an account that you want to move to a new retirement account.  If the money is sent directly to you, then you’ll receive $8,000 (20% will be withheld).  To avoid any tax penalties, you will have to send $10,000 to the receiving account.  That means you need to make sure you have access to funds to make up for the 20% withheld.  In this example, that amount is $2,000.

You can avoid the 20% withholding by have the distribution set up as a direct rollover, or transfer, as mentioned above.  This means that the money goes directly from the withdrawal account to the receiving account.  Retirement plan administrators do this all the time, and they can help walk you through the process.

Future Contributions and Rollover IRAs

There are some benefits of keeping a rollover IRA separate from any other IRAs you’ve been funding in the past, or would consider funding in the future.  That’s because once you make personal contributions to a rollover that is not from a company-sponsored plan then you will very likely lose the ability to move that rollover to a new company’s sponsored plan.

Rollover IRA Withdrawal Rules

The withdrawal rules for a rollover IRA are exactly the same as the rules for a traditional IRA.  The contributions and earnings are taxed when withdrawn after age 59 1/2.  Any withdrawals before the age 59 1/2 are taxable and subject to a 10% tax penalty.  Withdrawals from a rollover IRA must begin by the year after you reach 70 1/2.

For more information these types of distributions, including allowed exceptions to these rules, see our publication on IRA Withdrawals.

Roth IRA Rollovers

Finally, we’d like to mention that there really is no such thing as a Roth IRA rollover.  That’s because the IRS refers to the process of rolling-over a traditional IRA to a Roth IRA a conversion.  Unfortunately, the topic of converting a traditional IRA into a Roth IRA is far too complex to discuss here.

There are worksheets involved to figure out if you qualify; there are tax and withholding implications too.  Although we attempt to take fairly complex subject and explain them in plain English, this subject is best discussed with a tax professional.  For the ambitious readers out there, you can take a look at this 100 page publication put out by the IRS - Publication 590, which thoroughly discusses the topic of IRA conversions.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.