Writer: D'Lyn Ford
LAS CRUCES--Taxpayers will have time to contribute to their Individual Retirement Accounts (IRA) before April 15 to count for the previous calender year.
For many people, IRA contributions are tax deductible, said Susan Wright, consumer education specialist with New Mexico State University's Cooperative Extension Service. A full contribution is usually $2,000. Investors who contributes a smaller amount in 1998 can make up the difference now.
"To qualify for a full IRA deduction on their 1998 taxes, taxpayers must meet certain qualifications based on their adjusted gross income," Wright said. "Married couples can qualify for a partial deduction at certain adjusted gross income levels. Households with earners who do not have an employer retirement plan can earn any amount and obtain a full IRA deduction."
Even if IRA investors don't qualify for a tax break, an IRA is still a smart way to save toward retirement, she said. IRA's allow money to grow without being eroded by taxes. IRA contributions and earnings compound tax deferred until retirement.
"If you save your money in a plan that is not tax-deferred, it will not be as profitable as money placed in a tax-deferred plan," Wright said. "Over time, the difference in earnings between taxable and tax-deferred investments can equal thousands of dollars."
Investment counselors give this advice:
•Begin purchasing IRAs as soon as possible. People should begin when they're
teenagers if they earn an income. Because the investment will compound with
time, the difference between starting at age 18 or 20 compared to age 40
can be thousands of dollars.
•Purchase IRAs early in the year. Each day investors delay means less
earnings on investments.
•Consider long-term earnings when deciding how to invest an IRA. Over time,
stocks have out performed other investments. Between 1926 and 1996, the
average return on stocks was 10.7 percent compared to 5.1 percent for U.S.
Treasury bonds and 3.7 percent for U.S. Treasury bills. The inflation rate
for that period averaged 3.1 percent.
•Consolidate IRA accounts to avoid costly custodian fees. Investors also
may want to consider a "self-directed" account with a brokerage firm where
they can place a variety of assets. Today, many firms are offering on-line
services and programs that allow consumers to select from among hundreds of
•Investors who are expecting a tax refund this year should consider using it
to help purchase their next IRA.
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