Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
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by Robert Hashemian

Page 389

IRA - In addition to the pre-tax salary deduction plans available, you could also have an IRA (Individual Retirement Account) plan which is normally held with a financial institution such as a brokerage firm. Each person is entitled to contribute up to $2,000 (as of the writing of this book) into the IRA account and use that amount as a tax deduction. The funds can be invested in many types of securities available through your broker. This even includes writing covered call options (but not trading options). And IRAs do not allow margin trading either. Also gains on an IRA are not taxed until you begin withdrawing from the account at the age of 59 1/2 at which point your withdrawals will be subject to regular incomes tax calculated at the time of withdrawals. And you have to start withdrawing at 70 1/2. As you can see, an IRA account works similar to a 401(k) or similar plans with some differences:

  • Since your account is generally held through a broker, you have a much wider selection of investments. With 401(k) or 403(b) you are limited to the investment selections provided by your company.
  • Your maximum allowable contribution to an IRA plan is $2000 (based on year 2000). You cannot borrow against your funds in your IRA account. Since there are no salary deductions, you must deduct your contribution amounts at tax time yourself.

There are also rules for high-income earners as to what the maximum allowable contribution to an IRA can be. For example, single people with gross income of $110,000 or more are not eligible for any contributions. The IRA plan we just covered is also known as traditional or conventional IRA. There are also other types of IRA plans available, most notably the Roth IRA.


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Bonds Futures Stocks Options
Mutual Funds Retirement Final Words Appendix A

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