Retirement Planning

Getting Started

One of the most effective ways to build funds to help you meet your financial goals is through an Individual Retirement Account. The tax-deferred compounding of your IRA funds can help you save more for retirement than the same amount of funds in a taxable savings account. However, how do you choose if a Traditional or Roth IRA is right for you? While the Traditional IRA may offer you a current tax deduction, the Roth IRA can provide tax-free withdrawals at retirement.

As the chart below shows, whether you invest in a Traditional or Roth IRA, your IRA will provide more after-tax income over the course of your retirement than a currently taxable account.

Traditional IRA

For 2007, the maximum annual contribution is $4,000. Individuals age 50 or older may contribute up to $5,000. For 2008, the maximum annual contribution is $5,000. Individuals age 50 or older may contribute up to $6,000.Depending on your adjusted gross income (AGI) and coverage by a retirement plan at work, contributions to a Traditional IRA may be tax-deductible. Once you reach age 59½ regular penalty-free withdrawals are permitted from the account. However, if you are not yet age 59½, you may use a special distribution method called Substantially Equal Payments to take penalty-free withdrawals from your IRA. In addition to this method, withdrawals are permitted before age 59½ without penalty for higher education expenses and a first-home purchase. Withdrawals from a Traditional IRA are always subject to income tax. For further information, please refer to our brochure, IRA: Building Blocks For Your Retirement (PDF).

Roth IRA

As with the Traditional IRA, the Smith Barney Roth IRA allows a maximum annual contribution of $4,000 in 2007. Individuals age 50 or older may contribute up to $5,000. For 2008, the maximum annual contribution is $5,000. Individuals age 50 or older may contribute up to $6,000. Roth contributions, however, are always after-tax. Contributions to the account are available at any time tax- and penalty-free, giving you immediate access to your money. Once you have held the account for five years and you are over age 59½, the earnings from the account are available tax-free. The Substantially Equal Payments method for early withdrawals applies to the Roth IRA as well. Withdrawals before age 59½ not under the Substantially Equal Payments rule are permitted penalty-free for higher education expenses and a first-home purchase. For further information, please refer to our brochure, IRA: Building Blocks For Your Retirement (PDF).

Converting a Traditional IRA to a Roth IRA

If you have a Traditional IRA and your AGI is less than $100,000, you may want to consider converting the account to a Roth IRA if the Roth would better serve your retirement savings needs. Effective 2010 and subsequent years, there is no AGI limit on your eligibility to convert Traditional IRA funds to a Roth IRA. You would be responsible for paying taxes in the year the conversion takes place -- but when you've held the Roth IRA for 5 years and reach age 59½, withdrawals will be permitted tax-free.

Which IRA Is Best for You?

Investors often wonder which IRA would best suit their needs. As part of a comprehensive array of financial planning tools, our Roth vs. Traditional IRA Calculator can help you choose between the two accounts and, if you already have a Traditional IRA, decide whether a Roth IRA conversion makes sense for you.

Once you have chosen the appropriate IRA, it is helpful to chart a retirement savings course. Our Retirement Planning Analysis can assist you in mapping out an effective retirement savings plan.

Take Advantage of an Early Start

The newly increased IRA limits may be even more beneficial if you are a young adult. Here's why: Making the maximum annual contribution to a Roth IRA for the next 15 years beginning in 2007 at age 21, will result in almost double the amount available at retirement than if contributed for 30 years starting at age 35.

Open an IRA Today

Opening an IRA is simple. Just fill out our form, and you will be on your way to realizing the retirement you've envisioned.

For more information, please contact your Smith Barney Financial Advisor.

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