Tuesday, August 08, 2006

Milestone

Throughout life, we reach milestone dates that are significant. For example, the date we get our driver's license, school graduation dates, reaching the age of forty, or our 25th wedding anniversary date. All these can be important to us and represent an accomplishment, a new beginning, or another chapter in our life.

Such a milestone was reached by me yesterday when my age became 59 1/2. This age is key as it relates to Individual Retirement Accounts because one can begin to take disbursements without the 10% penalty imposed for early withdrawals.

Traditional IRA's started in September 1974. These accounts were created to encourage citizens to save and plan a source of money for retirement. IRA savings are tax-deferred which means contributions into an account are not taxed that year. Furthermore, the growth of money in this investment account is not taxed until withdrawn unlike ordinary interest, dividends, and capital gains in other personal accounts.

I started contributing to an IRA account the month the new program started in'74. I made regular contributions to the maximum level allowable into the IRA ( later 401K) for the life of my working career. I never stopped contributing (until I retired a year ago) and never took withdrawals for any reason.

A friend and former colleague introduced me to the term "serious money". He often used that term to describe money amounts that were large as opposed to pocket change.

I'll use that term here to describe IRA sums after 30 years of contributions and growth. It can be serious money.

Sometime in the future, I will start to take regular monthly distributions from my IRA, pay the taxes due in full without complaint, and hopefully enjoy a comfortable retirement. But for now, the amazing power of compound interest is at work in this account. The monthly growth in my IRA is serious money.

I encourage all young readers of this blog to do as I did and invest to the maximum in your IRA or 401K and additionally, if possible, the Roth IRA.

Return here on Thursday, August 10 for an update.

Have a good day!

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