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Answer:
Dear
BuyandHolder,
An
excellent question.
Fortunately,
the rules for funding your IRA are fairly flexible.
Here are the key points to keep in mind:
1)
You can write an annual check to your IRA for
the maximum contribution.
2)
You can make any number of smaller contributions
into the account throughout the year.
3)
You can even wait until April 15 of the year following
a particular tax year to make your contribution. For
example, you can wait until April 15, 2007 to make
IRA contributions for the 2006 tax year.
If
you decide to use the flexibility of point #3, make
sure you indicate on your check the tax year for which
the contribution is being made and then check your
IRA statement.
And,
on all checks going into the account, include your
BUYandHOLD account number.
Consolidating
IRAs
Many
people inadvertently wind up with a handful of IRAs.
This is generally not a smart idea -- not only are
you hit with multiple annual management fees but the
more accounts you have the more difficult it is to
keep track of their results. Another valid reason
for consolidation -- if you are not happy with the
earnings of one or more accounts.
You
didn't mention how many IRAs you have, but if you
have several, keep in mind that you can transfer your
money from one IRA to another without paying either
taxes or penalties -- provided you do so according
to IRS rules.
The
IRS allows only one such transfer (within a
12 month period) if the money comes to you first.
You can then hold on to it on a tax-free basis only
for 60 days. If you fail to reinvest your transferred
money into another IRA within that time frame you
will wind up paying taxes on your withdrawal. (You
may also be required to pay an early withdrawal penalty.)
So,
it's much wiser to have the money transferred from
one financial institution to another -- say from a
mutual fund company or a bank directly to BUYandHOLD.
Another
advantage of the institution to institution transfer
is that you can make as many of these as you wish
during the course of the year.
Contribution
Amounts
For
tax years 2006 and 2007, you can contribute up to
$4,000 per year if you are under age 50; if you are
50 or older, that amount is $5,000. That's up to $4,000
(or $5,000) of your earned income or alimony. Come
the year 2008, those figures climb to $5,000 and $6,000
respectively.
So,
considering point #2 made at the beginning of this
column, let's take $4,000 and divide it by 12; we
get $333.33. Why not put in $333 into your IRA on
the first or 15th of each month -- this is a painless
way to make certain you will contribute the full amount
for 2006.
Caution:
If you do not have earned income from a job (full-time,
part-time or freelance) or from alimony, you cannot
contribute to an IRA.
For
More Information
The
ultimate source for every little detail on IRAs is
obviously the IRS. You can read publication #590 online
at www.irs.gov
or get a copy sent to you by calling 1-800-829-3676.
To
learn more about IRAs at BUYandHOLD click
here.
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