Submitted by: Richard Chapo

Many Americans make annual contributions to individual retirement accounts. If you haven t done so for the 2005 tax year, you still can.

Not To Late To Make 2005 IRA Contribution

Contributing to individual retirement accounts just makes sense. Most don t believe social security is going to survive for long. Even if it does, one has to wonder how small the distributions are going to be. With the baby boomer generation about to put significant strain on the system, distributions in ten or twenty years are going to be paltry.

If you failed to contribute to your individual retirement account in 2005, you have until April 15, 2006 to do so. This is also true if you contributed during 2005, but failed to deposit the maximum amount allowed under law.

The contribution limits for individual retirement accounts went up in 2005. You can generally contribute up to $4,000. If you are older than 50 years of age, the limit bumps up another $500 to $4,500. When making contributions, just make sure you note on the deposit slip that it is for the 2005 year, not 2006.

Although there are variations, individual retirement accounts come in two general forms. The traditional independent retirement account is a pre-tax contribution vehicle. If you meet salary and filing requirements, the money you contribute from your earning is excluded from your adjusted gross tax calculations. If you are looking for extra deductions for 2005, catching up on your individual retirement account contribution can create a healthy reduction of your reported earnings. The downside, of course, is distributions from traditional IRAs are taxable when you hit the relevant age limit.

The Roth IRA represents a different approach to the individual retirement savings conundrum. Essentially, the Roth IRA shifts the tax burden to the beginning of the savings cycle. In human terms, this means you get no deduction for contributing to a Roth IRA. If you don t get a deduction, why would you use a Roth? The huge advantage to the Roth is found in the distributions. Simply put, distributions are tax-free when you reach the appropriate retirement age. If you are young, say under 40, Roth IRAs typically present a better return than traditional IRAs. This is because the money invested has more time to compound and grow.

Regardless of your choice, socking away money for retirement makes sense. Fortunately, you can still do so for 2005.

About the Author: Richard A. Chapo is with

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