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Answer:
Dear
Ms. Lamera,
I
think what you're asking is -- can you have an IRA
with an online, discount brokerage firm...and the
answer is yes. IRAs can be opened with both discount
firms and online firms.
However,
to contribute to an IRA -- with BUYandHOLD or with
any other qualified financial institution -- you must
have earned income. That is, money earned from
wages, salary, tips, freelance work, commissions,
royalties or self-employment. If you received alimony
during the year, that also qualifies you for an IRA.
On
the other hand, if all of your income is non-earned
income, that is from stocks, bonds, interest or
dividends, then you cannot contribute to an IRA.
You
haven't mentioned your age -- but just so you'll know,
there are no minimum age requirements. However, if
you open a traditional IRA, you cannot make contributions
in the year in which you turn 70 1/2 nor after that
date.
This
brings us to the point that there is more than one
type of IRA.
The
traditional deductible IRA is one in which
you make contributions on which you have not yet paid
taxes. When you begin taking out money at retirement,
you will be taxed on the full amount of your contributions.
With
a traditional nondeductible IRA, you make contributions
with after-tax dollars -- money you've already paid
taxes on. When you begin taking out money, you will
not be taxed on the amounts you contributed. You will,
however, be taxed on the account earnings -- including
interest, dividends and capital gains.
With
the newer Roth IRA, your contributions are
made with after-tax dollars and you do not pay income
tax when you begin taking money out, provided you
are age 59 1/2 or older and have held the account
for at least five years.
Note:
There's an exception to the 59 1/2 rule for a first-time
homebuyer. He or she can take out up to $10,000
from a Roth IRA to buy a principal residence.
It does not apply to a second or vacation home and
you must have had the Roth account for at least
five years. Under these circumstances, the home-buying
withdrawal is tax free.
Another
benefit of the Roth: As stated above, you are not
required to start taking distributions when you reach
age 70 1/2. With the traditional IRA, you must.
The
Dollar Amounts
For tax year 2005, you can contribute $4,000 if you
are under age 50 and $4,500 if you are 50 or older.
For 2006 and 2007, the amounts will be $4,000 and
$5,000, respectively. In 2008, the contribution goes
up to $5,000 and $6,000, respectively.
Tip:
If you are a nonworking spouse, your spouse can
put $4,000 per year into a special Spousal IRA
for you. If you are 50 or older, that amount is
$4,500. You cannot put the money in the same account.
You both must have or open separate accounts. Spousal
contributions can be made until the year the spouse
turns 70 1/2.
Bottom
Line
You have up until April 15, 2006 to make your 2005
IRA contribution. However, if you file for an extension,
that extension does not apply to making contributions.
The
annual contribution does not have to be made in full
all at once -- you can make partial contributions
throughout the year. This is a helpful ruling for
those who find it difficult to get $4,000 together
in a lump sum.
More
Information
-
You'll find details about how to open and maintain
your IRA at BUYandHOLD by clicking
HERE.
- IRS
Publication #590 covers every single fact about
IRAs. You can download it at: www.irs.gov.
Good
luck!
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