INSIDE FINANCE:
A Valuable Valentine


By Robert M. Jaffe, MBA, AAMS
February 10, 2005

Hearts and especially flowers are a lovely way to show your affection for that special person. On the other hand, don't forget that other very special person in your life….you! Give yourself a Valentine that should pay off in spades as well as hearts.

On Valentine's Day, February 14, you will have two more months to contribute to an IRA (April 15 deadline) for 2004. If you don't already have an IRA (Individual Retirement Account), don't waste time, open one! It's a simple procedure and the sooner you get started the better your chances to build for your future.

There are two types - Traditional and Roth IRA's. Put simply, there are restrictions in terms of income cap and employer sponsored retirement benefits that your financial advisor, brokerage firm or mutual fund group will be happy to explain. The main difference is that Traditional IRA contributions are deductible (within certain limits) and the investments grow tax-deferred until you take distributions at which time the proceeds are taxed at your ordinary income rate. On the other hand, contributions to Roth IRA's are not deductible, and the proceeds are tax-free when distributed.

In 2004 the maximum contribution is $3,000 or 100 % of earned income, whichever is less, with an additional $500 "catch-up" for those 50 and over. In 2005 the contribution limit is $4,000 and $500 catch-up. So, if you haven't already done so, you may be able to put $3,000 in an IRA for 2004 and $4,000 for this year, plus an additional $1,000 if you've reached the half-century mark.

The younger you are, the better the opportunity for your savings investments to compound over the years. After all with a Traditional IRA you don't have to take distributions until age 701/2 and Roth distributions don't have an age requirement. In both cases, however, usually you must wait until age 591/2 or distributions will be taxed and you'll pay a 10% penalty to boot.

To paraphrase Ogden Nash, "Candy is dandy, but an IRA, for your future, is a lot more handy."

Happy Valentine's Day, one and all!

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INSIDE FINANCE will appear regularly, addressing financial matters of interest to our readers. Any questions? Email bob@cfsias.com

Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member NASD/SIPC. Cambridge and CFS are not affiliated.

The preceding article is for informational purposes only and should not be used as the primary basis for an investment decision. Indices mentioned are unmanaged and cannot be invested into directly. Past performance does not guarantee future results. All examples given are hypothetical and do not reflect actual investments. The views expressed in this article are those of the author and are not necessarily those of Cambridge. Bob Jaffe is Managing Director of CFS Investment Advisory Services, LLC in Totowa and has been a Clifton resident since 1984. Active in community affairs, Bob is Past Board Chairman of the North Jersey Regional Chamber of Commerce and a member of its foundation board. He serves as a commissioner on the Clifton Rent Leveling Board and the Committee for Individuals with Disabilities. He is Vice President of the Clifton Rotary Club. Representatives of Cambridge do not offer tax or legal advice. Consult a professional for your personal situation.