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Dollars & Sense

Scott Butera
One of the most effective ways to build funds to help you meet your financial goals is through an Individual Retirement Account (IRA). If you haven't already done so, there's still time to open and fund an IRA for the tax year 2004. You can make a maximum annual contribution of $3,000 to your IRA for 2004 and another $4,000 in 2005. If you are 50 or older, you may contribute an additional $500 for each tax year. Therefore, you could potentially contribute up to $8,000* to an IRA this year.

Whether you choose a Traditional or Roth IRA, the tax-deferred compounding of your IRA funds can help you save more for retirement, on an after-tax basis, than the same amount of funds in a taxable savings account.

Traditional IRAs are deductible under certain circumstances and permit penalty-free withdrawals if you are over age 59.5, at which time your money is subject to ordinary income tax. Roth IRAs are nondeductible IRAs that permit tax-free and penalty-free withdrawals of contributions and earnings - if the account is held for five years and you are over age 59.5.

When establishing an IRA, factors to consider include your age, adjusted gross income, current and projected tax brackets and you and/or your spouse's participation in an employer sponsored retirement plan.

An individual who has earned income or whose spouse has earned income may contribute to a Traditional IRA as long as the IRA account holder has not reached age 70.5 by the end of the contribution year. Contributions to a Roth IRA may continue beyond age 70.5. For 2005, the annual maximum contribution to an IRA is $4,000, or 100 percent of earned income, whichever is less. The annual catch-up contribution is $500 through 2005 for those age 50 or older, increasing to $1,000 in 2006.

No matter how old you are, if your adjusted income (AGI) is under $95,000 (single) or under $150,000 (joint), you may open and make a full contribution to a Roth IRA. Partial contributions are permitted if you are single and your AGI is between $95,000 and $110,000 (if married, between $150,000 and $160,000). There are no AGI limits for contributions to a nondeductible Traditional IRA.

To determine your eligibility for Traditional IRA deductibility or Roth IRA contributions, or to further discuss the benefits to you of retirement planning using IRAs, contact your financial or tax advisor.

Smith Barney does not provide tax and/or legal advice. Please consult your tax and/or legal advisors for such guidance. Smith Barney is a division of Citigroup Global Markets Inc. Member SIPC..

Scott Butera is a financial consultant with the Honolulu office of Smith Barney and may be reached at 543-0316 or scott.m.butera@smithbarney.com.

*$8,000 figure includes the maximum annual IRA contribution limit of $3,000 for 2004 and $4,000 for 2005, and the catch-up of $500 for 2004 and 2005. Contributions for year 2004 must be made by April 15, 2005.

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Hawaii Business,February