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The Ins and Outs of IRAs

Q&A with Prof. Ray Madoff

Professor Ray Madoff

Q: What is an Individual Retirement Account (IRA)?

A: An IRA is a flexible yet powerful way to save for retirement. With a traditional IRA, individuals contribute pre-tax dollars to their account. With a Roth IRA, the taxes are paid beforehand.

Q: Who can contribute to an IRA?

A: Anyone with earned income who is under 70½ can open a traditional IRA. Anyone, regardless of age, can open a Roth IRA if they fall within certain income limits. Income limits are subject to change, and contribution limits apply to both traditional and Roth IRAs.

Q: When can investors access their funds?

A: For a traditional IRA, penalty-free distributions can be made as early as age 59½, while minimum required distributions begin at age 70½. For a Roth IRA, penalty-free distributions may also begin at age 59½, as long as the account has been open for at least five years. There is no minimum required distribution with a Roth IRA.

Q: Why are IRAs a good option for charitable giving?

A: Many people don’t know that if you name someone other than a spouse as the heir to an IRA, they could receive as little as 1/3 of the account after income and estate taxes. A charitable or educational institution is not subject to those taxes, so if you name your favorite charity as the beneficiary of your IRA, you ensure that the entire account goes to benefit a cause you love.

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Professor Ray Madoff is a nationally recognized expert on trusts, property, and estate planning and the author of Immortality and the Law: The Rising Power of the American Dead.

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