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STEP BY STEP GUIDE TO SETTING UP AN IRA

While it may look like a daunting task, setting up an IRA for retirement is really quite simple. The tough part, however, is deciding on the type of IRA and which brokerage or financial institution to utilize. This step-by-step guide will help you make these decisions along the way.

STEP ONE: Choose the Type of IRA that is Right For You-Traditional or Roth IRA

There are four basic types of IRA's.
1. Traditional
2. Roth
3. SEP
4. SIMPLE

The SEP and SIMPLE IRAs are geared for the self-employed and small business owners and have their own set of requirements and restrictions. The Traditional and Roth IRA are for the individual investor and, for simplicity's sake, is the focus of this "How to guide".

*Choosing between a Roth and Traditional IRA depends upon whether you want to
save on taxes now or later. With a Traditional IRA the taxes are deferred until you retire and begin receiving distributions. A Roth IRA, on the other hand, is not tax deferred but the income received in retirement is generally not taxable.

Traditional IRA= Contributions are tax deductible
Distributions are taxable

Roth IRA= Contributions are not tax deductible
Distributions are not taxable (some exceptions)

STEP TWO: Do you qualify?

There are some eligibility requirements you must meet in order to contribute to a Traditional and/or Roth IRA. Here is a summary of the 2007 requirements and contribution limits:

Traditional
1. Must have earned income from employment.
2. Maximum annual contribution is 100% of your income or $4000 ($5000 if 50 or
older), whichever is less. (if your earned income is $2000, you can only
contribute $2000)
3. Must be younger than 70 by the end of the year in order to be eligible to
make contributions.

Roth
1. Must have earned income, but your modified adjusted gross income (AGI) cannot
exceed $166,000 if married filing jointly, or $114,000 filing single.
2. If married and filing separately, your income cannot exceed $10,000 if you
lived with your spouse any time during the year. *See "Roth IRA 101"
3. Maximum contribution is $4000 ($5000 if 50 or older)
4. No age restriction. Contributions can be made at any age.

Key Point: Your annual contribution to all IRAs combined cannot exceed $4000
( or $5000 ). In other words, you cannot contribute $4000 to each
IRA you own. Also, the amount you contribute to a 401(k) can offset the
amount you may contribute to a personal IRA.

*For further information about contributions and income limits,

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