On Retirement

Reduce Your Taxes and Build Retirement Security

If you haven't noticed, we've added another season to the calendar. It's called tax season. My accountant friends say that, from now until April 15, they're in the office before sunrise and long after the sun sets, frequently working seven days a week looking for ways to reduce the tax liabilities of their clients.

Meanwhile, public sector managers I know are digging through pay stubs, locating receipts, and running computer software programs in hopes of finding every possible deduction.

But one possible deduction often overlooked by managers that can potentially cut their tax bills and make their accountants' job easier this season is opening or contributing to an individual retirement account (IRA). Best of all, opening an IRA is a lot easier today. In just 15 minutes, you can open and fund an IRA by using online wizards! Even the busiest managers are now finding the time to open an IRA. And when you open a Traditional IRA from now until April 15, you may be able to deduct the contribution from your 2005 taxes.

IRAs, which come in two basic flavors, Traditional and Roth, have long been a popular method for individuals to invest for retirement, providing favorable tax treatment and offering flexible ways to meet today's expenses. Traditional IRAs allow you to make annual contributions of up to $4,000 in 2005; these may be partially or fully deductible, depending on your filing status and income level. Your investments grow tax-deferred, and you only pay taxes when withdrawing funds from your account during retirement.

A Roth IRA also allows you to make annual, after-tax contributions of up to $4,000 in 2005. Unlike with the Traditional IRA, however, you won't pay taxes on any earnings while they remain in a Roth IRA. In addition, you won't even owe any taxes or penalties on the assets you withdraw from it. Plus, if you are aged 50 or older, you can make additional, annual catch-up contributions to both of the IRAs each year. For 2005, the catch-up limit is $500.

If you are uncertain which IRA is right for you, there are plenty of Web sites where you can get additional information, including the IRS Web site, at www.irs.gov, and ICMA-RC's site, at www.icmarc.org. On ICMA-RC's site, you'll find descriptions of the features of each type of IRA, a Q&A section to help you determine which IRA is better for you, and financial planning calculators.

After you decide on your preferred type of IRA, use an online IRA wizard to easily and quickly open your account. Typically, IRA wizards ask a series of questions, so you'll want to have your financial information handy. Within a few minutes, you will have opened and funded an IRA and will wonder why you didn't do it before.

Opening an IRA may be one way you can reduce your 2005 taxes. But remember, when you open or contribute to a 2005 IRA, you are also building retirement security. That's a goal that you and your accountant can both feel good about.

—Joan McCallen
President and CEO
ICMA-RC
Washington, D.C.
www.icmarc.org

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