Many Americans put money into their own retirement accounts every year. You can still do this for the 2005 tax year if you haven't already.
It's not too late to put money into an IRA for 2005.
It makes sense for people to put money into their own retirement accounts. Most people don't think social security will last for a long time. Even if it does, it's hard to say how small the payouts will be. Because the baby boomer generation is about to put a lot of stress on the system, payments will be small in ten or twenty years.
If you didn't put money into your individual retirement account in 2005, you can do so until April 15, 2006. This is also true if you made a contribution in 2005 but didn't put in the maximum allowed by law.
In 2005, people could put more money into their individual retirement accounts. Most of the time, you can put in up to $4,000. If you are 50 years old or older, the limit goes up by $500 to $4,500. Make sure to write on the deposit slip that the donation is for the year 2005, not 2006.
Even though there are some differences, there are two main types of individual retirement accounts. Contributions to a traditional independent retirement account are made before taxes are taken out. If you meet salary and filing requirements, the money you donate from your earnings is not counted toward your adjusted gross tax. If you want to get more deductions for 2005, catching up on your contributions to your individual retirement account can give you a nice cut to your reported income. The downside, of course, is that when you reach the age limit, distributions from traditional IRAs are taxed.
The Roth IRA is a different way to solve the problem of how to save for retirement. The Roth IRA basically moves the tax burden to the beginning of the savings process. This means that you can't get a tax break for putting money into a Roth IRA. Why would you use a Roth if you don't get a tax break? The distributions are the Roth's biggest benefit. When you reach the right age for retirement, you can take money out of your account without paying taxes on it. Roth IRAs usually give you a better return than traditional IRAs if you are young, say under 40. This is because there is more time for the money to grow as it is invested.
No matter what you choose, it makes sense to save money for retirement. Fortunately, you can still do so for 2005.
