An Individual Retirement Account (IRA) is a tax-deferred savings account that you can invest in stocks, bonds, funds and similar investment vehicles. Generally speaking, $250 to $1,000 is the minimum amount required to open an IRA, depending on the financial institution where you establish the account.
IRA Account Minimums
You can set up an IRA at a bank, a brokerage or a mutual fund company. According to the Kiplinger website, you can open an IRA at some banks for as little as $100, but the minimum initial deposit is $500 to $1,000 at most brokerages and mutual fund companies (where you have more investment options).
No Minimum Contributions
You are not required to contribute to an IRA account once you have opened it. While it is to your benefit to contribute up to the annual limit because of the tax-deferred status, no contributions are required at any time.
IRA Contributions
As retirement savings accounts, IRAs are designed to encourage regular contributions over many years, and thus have annual maximum limits for contributions. In 2009, the maximum contribution limit was $5,000 per individual. Persons over age 50 may also make an up to $1,000 annual "catch up" contribution.
IRA Distributions (Withdrawals)
Most IRA distributions are subject to income tax, and all distributions taken before age 59 and a half are subject to a 10 percent early withdrawal excise tax (with some exceptions). At age 70 and a half, IRA holders must begin taking a required minimum distribution or face a 50 percent excise tax penalty on the amount not withdrawn each year.
10 Percent Early Withdrawal Penalty
All IRA distributions before age 59 and a half will be assessed a 10 percent penalty except for those that occur because of the disability or death of the IRA holder, those that represent a series of "substantially equal periodic payments" over the statistically-determined life expectancy of the IRA holder, those that are used to pay for medical expenses more than 7.5 percent of the account holder's adjusted gross income or are used to pay medical insurance after the IRA holder is unemployed for more than three months, or are used for a first-time home purchase, or are used for the costs of higher education for the IRA holder or family members, or are used to pay back taxes because of an IRS levy.
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