UNDERSTAND YOUR CHOICES OF IRAs

This "Financial Focus" column is prepared by Edward Jones Investments, headquartered in St. Louis. Jones includes branches throughout the nation, including Cape Girardeau and Jackson.

We've come a long way from the days when Henry Ford said you could order his Model T in any color you wanted -- as long as it was black.

Today's Americans want choices, and that's just what they're getting for retirement planning. With Roth IRAs and improved traditional IRAs, there's something for just about everyone.

Any working American under age 70 1/2 can contribute up to $2,000 a year to a traditional IRA. Americans of any age can contribute to Roth IRAs as long as their annual income is less than $95,000 ($150,000 for couples). You can have either or both types of IRAs, but the total contribution per individual cannot exceed $2,000 a year.

The main difference between Roth and traditional IRAs is when you pay your taxes -- now or later. Roth IRA contributions are included in your taxable income each year, but that money grows tax-free, and withdrawals are tax-free under certain conditions. (We'll discuss the Roth IRA in more detail next week.)

The traditional IRA, on the other hand, allows many people to take a tax deduction today, deferring taxes until they withdraw the money in the future. You can deduct your full IRA contribution (up to $2,000) from your taxable income each year if you're not covered by an employer-sponsored retirement plan. People who are covered by employer-sponsored retirement plans can still deduct all or part of their IRA contributions if their income falls within certain limits.

Some younger workers shy away from IRAs, fearing their money will be untouchable until retirement. It's true, withdrawals before age 59 1/2 are subject to a penalty on top of taxes, but penalty-free distributions are allowed for special needs: qualified college expenses, a first home purchase (up to $10,000), disability or death.

All IRA contributions grow free of taxes until you begin taking distributions. Being able to reinvest your earnings each year without having to pay taxes on them can add a powerful boost to your retirement nest egg.

For example, assume Mr. and Mrs. Anderson each contribute $2,000 to their IRAs for 20 years. If their $4,000 annual investment earned a 10 percent return, their account balance after 20 years would be $229,100. If the Andersons put that money in a taxable investment earning the same 10 percent and paid taxes at 28 percent each year, they would only have $120,677 for retirement.

Clearly, IRAs are a terrific way to save for retirement. With all these options, there's no reason for anyone dreaming of a comfortable future not to have an IRA.

The Southeast Missourian does not recommend that readers buy or sell stocks featured in this column, which is provided for informational purposes only.