IRA Dos and Don’ts
With the market revisiting the lows it touched last fall, it’s hard to get too excited about investing, period, even in a vehicle that promises a measure of tax savings such as an IRA.
Moreover, the IRA rules are confusing and off-putting under the best of circumstances. Nothing is altogether simple when the IRS is involved, so there are three key IRA types–the Roth, the deductible IRA, and the nondeductible IRA–all of which have varying pros, cons, and eligibility requirements. That can make it difficult to determine what type of IRA is right for you given your income, your time horizon, and your goals.
And even if you’ve identified the right IRA type, you’ll have to navigate an even bigger, badder maze of choice: what type of investment to put into the IRA wrapper. Having too many options can lead to what behaviorists call “choice overload.” That means that when individuals are confronted with too many options, they often choose to do nothing at all.
If you’ve been putting off funding your IRA for the 2008 tax year, don’t let choice overload bury you. You have until April 15 to make a contribution, and, if you have cash on hand, you might as well fund your Roth for 2009 at the same time.
Here are some dos and don’ts to keep in mind:
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