Experts Suggest Best Options of Its Use
MINNEAPOLIS, May 20 /PRNewswire/ -- As the Individual Retirement Account
(IRA) reaches its 30th anniversary, some would argue that it is the single
most important retirement vehicle for the average American, and after 30 years
it has drastically altered the retirement landscape in the United States.
Understanding retirement tools and how the IRA fits into retirement plans
should be the primary goal of anyone thinking about retirement, according to
Roman Kozak, a senior retirement plans consultant at RBC Dain Rauscher.
In a year when most investors were sporting bell-bottoms and big lapels,
the IRA made its first appearance on the financial planning scene. Thirty
years after its introduction in 1974, the IRA has exploded in popularity. In
fact, in 2003 more than 41 percent of U.S. households owned IRAs.
"The creation of the IRA proved to be a pivotal tool in giving Americans
options when preparing for retirement," said Kozak. "In fact, for many people,
it has become the cornerstone of their retirement strategy."
Changes in the business and investing landscape have forced individuals to
pick up the reigns of their own retirement destinies, particularly as fixed
benefit pension plans continue to taper off and individual retirement planning
continues to rise. A recent report showed that at year-end 2002, there was
more than $2.3 trillion in assets in IRAs, accounting for 23 percent of the
$10.2 trillion U.S. retirement market.
The IRA, which was introduced as part of the Employee Retirement Income
Security Act (ERISA) of 1974, had an initial annual contribution limit of
$1,500. The limit was raised in 1981 -- the same year that 401(k) plans were
first introduced to employees -- to $2,000 annually. Contribution limits
remained at that level for 20 years until the Economic Growth and Tax Relief
Reconciliation Act of 2001 increased them to $5,000 (to be phased in over
seven years), and added a "catch up" provision for individuals over the age
of 50.
In addition to changes to contribution limits, more options for IRAs were
created with the Taxpayer Relief Act of 1997 through the inception of the Roth
IRA. This vehicle, named after William Roth who served in the Senate from 1971
to 2001 and championed tax and savings reforms, allows for penalty-free -- if
not completely tax-free -- withdrawals for certain qualified purchases, such
as first-time home or educational expenses.
Eligibility for each type of IRA varies. For a traditional IRA, while
anyone with earned income is eligible to make a contribution, the
deductibility of the contribution depends on three factors. These include: the
individual's active participation in an employer-sponsored program such as a
401(k); the individual's tax filing status; and relative to an individual's
tax filing status, the amount of one's adjusted gross income (AGI). Joint
filers' AGI must be less than $65,000 and single filers' AGI must fall below
$45,000 to fully deduct contributions in 2004.
As far as eligibility for contributing to a Roth IRA is concerned, joint
filers can have an AGI of no more than $150,000 (with a phase-out range to
$160,000) and single filers' are limited to an AGI of $95,000 (with a phase-
out range to $110,000). As for the SEP IRA, which is a type of employer-
established retirement plan, a qualifying business owner can contribute the
lesser of 25 percent of compensation or up to $41,000. Investors should
contact their tax advisor for specific contribution limits and eligibility
requirements.
"The explosive growth of IRAs really speaks to how important this vehicle
is in personal retirement planning," said Kozak. "Thirty years is a relatively
short time frame and it'll be interesting to see how this vehicle continues to
evolve."
IRA Facts and Figures
-- Traditional IRA ownership has increased to an estimated 36.4 million
from 35.7 million, one year earlier
-- Roth IRA ownership has increased 21 percent to 16 million households
-- Nearly two-thirds of IRA households included mutual funds in their IRA
portfolios
-- 38 percent of IRA households held individual stocks in their IRAs
Source: ICI annual report on IRA ownership. Figures as of June 2003
RBC Dain Rauscher Corporation, a wholly owned subsidiary of Royal Bank of
Canada (NYSE: RY; Toronto), is the nation's eighth largest full-service
securities firm with more than 1,800 financial consultants and 5,000
employees. The companies serve individual investors and small business owners
through offices coast-to-coast, and capital markets and correspondent clients
in select U.S. and international markets. Founded in 1909, RBC Dain Rauscher
is a member of the New York Stock Exchange and other major securities
exchanges, as well as the Securities Investor Protection Corp. RBC Dain
Rauscher is headquartered at 60 South Sixth Street in Minneapolis.
Additional information on IRAs is available by contacting RBC Dain
Rauscher.
SOURCE RBC Dain Rauscher Corporation
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Related links:
http://www.rbcdainrauscher.com
CONTACT:
Jennifer Ellison of RBC Dain Rauscher,
+1-612-371-2225, jennifer.ellison@rbcdain.com
NOTE TO EDITORS: Kozak available for interviews
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