Why you NEED to open an IRA NOW!!

**If you remember nothing else of what this post will contain, remember that 4/15/09 is the last day you can contribute money to an IRA for the 2008 tax year. You have to get moving!

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I've opened IRAs for myself for many many years now. I started early after learning the magic of compounding. In fact, I wish I would have started sooner. At the age of 15, with a work permit in my pocket, I was a bagger at a local grocery store. "Paper or plastic?" is a question I'm certain I must have asked customers countless times. I could have put some of my earned income into an IRA that year but I didn't.

If I would have contributed a mesely $2000 into an IRA that year and not touched it or added any more money until I turn 65, I would have just over $101,000 waiting for me (assuming an 8% annual return).

At 15 though, young boys are too busy spending money on girls or saving for a car to think about funding retirement. Unfortunately, many people grow older but keep the same financial mentality. "I'll contribute later", "I have plenty of time", or "I can't afford it right now", are answers I hear all the time. Note that I said people grow OLDER; that doesn't mean they grow UP financially. If you haven't thought out your retirement, take a moment and ask yourself at what age will you grow up and do so?

I hope the answer was this year, and before 4/15. Let me give you some simple motivation. Let's say you are now 25 years old and want to retire at 65. That gives you 40 years to fund your retirement, starting NOW. The most you can contribute to an IRA this year is $5000. Ignoring any increases in the amount you can contribute, let's say that you sock away 5K for tax year 2008 and another 5K each year for 40 years. Assuming an 8% annual return, what do you think you'll have waiting for you in retirement?

The answer is just over 1.5 MILLION dollars! $1,510,385.62 to be exact. Shocked? Do the math. Or contact me and I'll post or send you a workbook that outlines the calculations. Now that you are motivated, let me tell you why you have to start now before 4/15.

Let's assume you don't start this year, in the next 8 days, but you do start for tax year 2009 and contribute the same 5K each year until you are 65. Know what you'll have waiting for you? $1,393.505.20.

What does that mean to you? It means that the $5000 you are not going to contribute by 4/15/09 just cost you $116,880.42. I don't know about you, but I'd say the extra year of delay is a costly mistake.

btw - if you open a Roth IRA, which I'd highly advise, that 1.5 million is yours TAX FREE. Get started now. You can open an IRA with as little as $500 at many institutions.

Will you have to pay the AMT (Alternative MinimumTax)???

The Alternative Minimum Tax was created almost 40 years ago and targeted high income households. The real reason AMT was created was to try and catch those wealthy folks who could shield their money from Uncle Sam through the use of various deductions.

Here is the catch, the AMT has not been adjusted for inflation like regular taxes. It is estimated that if congress does not make changes to the AMT by 2010, half of those earning between $75-100K will have to pay it!

It is difficult to determine if you will have to pay the AMT, you have to do your taxes under the regular tax rules and under the AMT rules. If the AMT tax is higher, that is what you have to pay. A faster way, is to use the AMT Assistant on the IRS's website (http://www.irs.gov/businesses/small/article/0,,id=150703,00.html).

Here are some things that make you more Iikely to pay the AMT:

• If you are in a higher income tax bracket
• If you take a large number of dependent exemptions
• If you have other substantial deductions
• If you deducted interest on a 2nd mortgage not used for residential purposes
• If you live in a high tax state
• If you exercised stock options and did not sell them the same year

Investors should be concerned about the AMT but shouldn't base their investments around it. If you're a baller with fat stacks in your pocket, you should spread out your gains and plan your income and deductions. Also, don't fall into the trap of buying municipal bonds from your financial advisor when he promises you AMT-free interest. Not all municipal bonds have that feature. Yes it's a drag, but always be sure to read the prospectus YOURSELF!!

You can learn more about the AMT, Tax Topic 556 at: http://www.irs.gov/taxtopics/tc556.html