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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75670  
Subject: Re: IRA question Date: 12/10/1998 1:46 PM
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Greetings, Foolbutnofool, and welcome. You asked:

<<I am planning on opening an IRA account and have the following questions.

1. Can I make contributions to an IRA at any time of the year I want? For example, suppose I want to contribute $2000 towards an IRA, instead of making monthly contributions, can I contribute in December and have the money work for me till then and then take the tax advantage.>>


Yes, you can contribute to an IRA on any day through the date your tax return is due for that tax-year. As an example, a 1998 contribution may be made on any day or days between January 1, 1998 through April 15, 1999. Your total contribution, of course, may not exceed $2K. That may be deposited all at once or a little at a time.

<<2. This question is unrelated to my previous question. I don't think I qualify for the tax deduction provided by regular IRA. So, I think it is obvious to open a Roth IRA. Is that correct?>>

Right again. A nondeductible contribution made to a tradtional IRA defers taxes on any earnings in that IRA; however, those earnings will be taxed when they are finally withdrawn. A nondeductible contribution to a Roth IRA also defers taxes on any earnings. Unlike the traditional IRA, though, those earnings may be withdrawn free of tax when you reach age 59 ½ and if the account has existed five or more years at that time.

<<3. What is the maximum limit for a Roth IRA?>>

Just as in a tradtional IRA, the maximum contribution is the lesser of your earned compensation for the year or $2K.

<<4. How does an IRA account work? Does it work like ay brokerage account, except I cannot withdraw?>>

Basically, yes, it's like any other account except that all earnings compound tax-deferred and you may be subject to taxes and penalty if you make a withdrawal prior to age 59 ½. See my discussion of IRAs in the Foolish Retirement Plan Primer at http://www.fool.com/Retirement/Retirement.htm .

<<5. What are the fees involved in an IRA account? My brokerage company has a no-fee IRA. Are there any catches? How about the transactions - buy or sell? Do they get deducted from the account.>>

Fees and maintenance charges depend on your broker. Yours evidently charges no annual maintenance fee. Trading fees are also contingent on your broker. Unlike the annual maintenance fee, trading fees must be paid from money inside the IRA. Pay them separately, and they will be considered part of the $2K overall annual contribution limit.

Regards….Pixy
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