|
IRAs may pave way for financially
secure golden years
By Michelle Samaad
Bankrate.com
 As
the fate of the Social Security system lies in question, many consumers
are seeking alternatives to save for their so-called golden years
of retirement.
 For many
Americans, individual retirement accounts remain the plan of choice
for those looking to expand their savings beyond the plan offered
by some employers.
In a poll
conducted by the Gallup Organization for Bankrate.com, 56 percent
of the 1,000 people surveyed said a bank would be the ideal place
to open a retirement account.
Bankrate.com
recently surveyed 25 banks nationwide and found that many institutions
are offering competitively higher interest rates on 1-year, 18-month
and 5-year IRAs.
Most
appeal: long term, high interest return
MBNA
America, Wilmington, Del., came out on top in with its 1-year and
18-month IRAs. The 1-year IRA has a rate of 5.70 percent and requires
a $1,000 minimum deposit. The 18-month account topped the list with
a rate of 5.80 percent and also requires the same minimum deposit
to open.
The Bank
Rate Monitor national average for 1-year CDs stands at 4.98 percent.
Key Bank
USA, Albany, N.Y., credits its branchless, mail-only transactions
for being able to offer a competitive 6.08 percent rate on its 5-year
IRA — higher than the 5.27 percent national average.
"We
don't have overhead costs to worry about so that allows us to offer
a higher rate," said Diane Altobello, director of deposit marketing.
Five-year
IRAs are the most popular
"The
5-year IRAs are the probably the most popular because the longer
term suits most account holders needs but typically the bulk of
our savings base is with CDs and money market accounts," she
added.
Equitable
Federal Savings Bank in Wheaton, Md., had the lowest minimum required
deposit of all the IRA products surveyed—$100.
"We
typically don't have high qualification
requirements on our IRAs and our rates are pretty competitive with
other banks in the area," said Napoleon Valeriano, an Equitable
branch manager.
Of the four
branches, the Wheaton office is mostly CD-driven, Valeriano said.
Like most banks during tax season, IRAs become more popular, he
added.
Strong customer
loyalty exists for savings
Valeriano,
a 20-year banking veteran, said because Equitable Federal is a "community
bank," there is a strong customer loyalty base which helps
to sustain its savings products.
Equitable
Federal's 1-year IRA, 18-month and 5-year IRA carries a 5.42, 5.51
and 5.56 percentage rate respectively.
At Hamilton
Bank in West Palm Beach, Fla., account holders need to dig deep
to open an IRA. Of all banks surveyed, it required the highest minimum
deposit—$10,000—on its 1-year and 18-month IRAs.
We will
take it under $10,000—as low as $2,500—but the rate will
be lower," said Laura Pavelko, a bank customer representative.
The rates
on the 1-year and the 18-month IRAs stood at 5.66 percent.
Although
less than half of the branch's account base is devoted to IRAs,
Pavelko said the savings product is "very popular with rollover
and transfers." she said, "we're getting a mixture of
people opening the accounts at various times of the year."
Tax
breaks encourage larger contributions
Consumers
tend to latch on to IRAs because contributions grow tax-deferred
until it is paid out at retirement and an IRA is easy to establish
and requires little or no administration.
In the Bank
Rate Monitor/Gallup poll, most people surveyed do not have an IRA
outside of their employment—67 percent.
The disadvantages
are the retirement benefit may not be sufficient enough to meet
financial needs, the employer issuing the account cannot control
the timing of withdrawals and distributions are fully taxable investments.
The federal
government established this retirement plan in 1981 to give individuals
an incentive to save for retirement. The popularity of this retirement
vehicle lies in its simplicity and benefits: annual contributions
and earnings in the account that aren't taxed until a withdrawal
is made.
Married
couples receive an IRA tax break
Married
couples were afforded a break last tax season when the government
increased the total combined annual IRA contributions from $2,250
to $4,000 even if one spouse has little or no earned income.
A couple
with a non-working spouse can save in a tax-deferred account and
additional $1,750 annually over what is allowed under current tax
law. In some cases, this additional contribution may provide an
increased tax deduction on joint tax returns.
The total
contributions for both spouses, however, cannot exceed their combined
compensation for the year.
Anyone under
age 70 1/2 with earned income may establish an IRA. Each year, you
may contribute the lesser of your earned income or $2,000 to an
IRA account until the year you reach age 70 1/2.
Some IRA
facts and tidbits
Other findings
in the Bank Rate Monitor/Gallup poll:
- Participants with incomes of $20,000 or more
appeared twice as likely to open an IRA during 1998 compared to
those who made less that $20,000—61 percent v. 10 percent.
- Of those who did not have an IRA outside
of work, a vast majority said they would not open one during 1997—91
percent.
- January was the most popular month to open
an IRA—18 percent. The least popular month was October—0
percent.
-- Posted: March 2, 1998
|
