The Bush administration is thinking about your retirement. Maybe you should be, too. It may be too soon to tell how President Bush will reform Social Security -- if at all -- but it's not too soon for you to crunch some numbers, make some decisions and plot a course on how you plan to spend -- and finance -- your retirement. There are some great savings vehicles out there, and some even better ones to come. The old 401(k)s, IRAs and Roth IRAs are still viable options, and we'll remind you of their rules later on, but the president is pushing two new ones: Lifetime Savings Accounts and Retirement Savings Accounts, both of which are basically new and improved Roths. Either way, there will be good choices available to you.
The World of IRAs
Individual Retirement Accounts, or IRAs, come in a few different flavors these days. The old-school IRA is a tax-deductible savings account. That means you'll get a deduction on your tax return in the year you make a contribution to the account. At age 59, you can start withdrawing the money but you'll owe income tax on the withdrawals, based on your current tax bracket. The logic is that you'll be retired and in a lower tax bracket, so the income tax hit will be less. As long as you are not covered by a retirement plan at work, for 2005 you can contribute up to $4,000 to an IRA account. You have to make that much money this year, though. If you only earn $3,500, that's all you can contribute. For 2004, your maximum contribution was $3,000, or $3,500 if you're 50 and over. If you are covered by a retirement plan at work, there are some contribution limitations.