Real Estate Should Be Part of Your Retirement Program

According to USA Today, 3 of 100 people age 65 are financially secure; 97 of them can’t write a check for $600 and 54 are still working. With the federal government now needing to pay back the Social Security System for the $2.3 trillion surplus it borrowed over the years, it’s time to rely on your own ability to save for retirement and not rely on the federal government to take care of you.

One of the best ways to become financially self-reliant is to set up and consistently invest in an Individual Retirement Account. The term IRA refers to Individual Retirement Arrangements established in 1974 by Congress, but everyone uses the term interchangeably with Individual Retirement Account.

Today, the federal government lets you contribute up to $5,000 each in separate accounts for you and your wife. If you’re over 50, you can contribute an additional $1,000, making it $6,000 apiece. For 2009, the contributions must be made by April 15, 2010, so you don’t have much time before the deadline passes. Since you can make a contribution for 2010 beginning Jan. 1, 2010, you could even make your 2010 contribution, if you wanted to.

The type of IRA account you should consider setting up is a Roth IRA, named after William Roth, the Senator from Delaware who initiated the legislation as part of the Taxpayer Relief Act of 1997. A Roth IRA differs from a traditional IRA in how the contributions and earnings are treated from a tax standpoint. A traditional IRA allows you to deduct the contribution in the year it is made, but then requires you to pay ordinary income taxes on the accumulated earnings in the year you begin taking distributions. Without being penalized, you can begin taking distributions as early as age 59 ½ , but must begin taking distributions no later than age 70 ½. With a Roth IRA, the contributions are not tax deductible, but the accumulated earnings come out tax free. Also, there is no mandate that distributions begin at age 70 ½.

The beauty of a Roth IRA is that it allows you to invest in real estate. With real estate prices being at their lowest in years, now is a good time to invest and your Roth IRA can be part of the acquisition. There are some rules, so check with the custodian/administrator you select to make sure you do things right. By Ken Holman