IRA » Individual Retirement Account

Workers contributing to their 401ks will be happy to know that their contribution limit won't change this year. Typically, the contribution limit adjusts to the conditions of the economy. Since the economy is in a deflated state, economists thought the IRS might lower the limit for 2010. However, it appears that the limit will sit still be at $16,500 for the year.

This is not the first time that the limit has not adjusted in one direction on the other - from 2007 to 2008, the limit was unchanged as well. However, since the limit was calculated based on a comparison of the cost of living index in the quarter ending September 30, 2009, to that of the same quarter in 2008 - and that time period marked the beginning of the worst financial crisis since the Great Depression - everyone expected the contribution limit to decrease.

So how does the contribution limit "unchanged" affect you?

• Plan Remains Unchanged - If you were already contributing the maximum $16,500 then you can leave your plan unchanged for next year.
• Better Purchasing Power - Since the cost of living decreased, your purchasing power is better in today's dollar.

However, experts say not to get too excited about these couple of perks. Ultimately, inflation will return and when it does, the $16,500 won't mean as much, especially for those near retirement. For those who are close to retiring, experts suggest maybe deferring retirement for a few years, or even investing in a Roth IRA that would tax you now but allow for tax-free withdrawals down the line.

Are you thinking about taking an early retirement? If so, you're not alone. Many people want to "jump ship" from the daily grind and really live life while they're younger than 65. Of course, retiring early means you have to have plenty of money saved up in order to do it comfortably - life costs a lot of money no matter how old you are. In fact, it might cost more on average when you're older because you need more help with things. One way that many people plan for early retirement is through the very popular savings vehicle of a Roth IRA. Like the regular IRA and the 401k, the Roth IRA was created specifically for retirement savings.

With a Roth IRA, you can access the amount of money you've contributed to it at any time. So if, for example, you've been putting in $1,000 per month, you can access the total of your contributions at any age. Since a Roth IRA is an investment fund, the money you put into it should grow as the money is invested.

When it comes to accessing the earnings of your Roth IRA, however, that's a different story: You have to wait five years from the year in which you opened your account. You must also meet one of the following qualifications:

• Be 59.5 years or older.
• The withdrawal is for your beneficiary after you die.
• You have become disabled.
• You need the money for higher education costs and student loans won't cover it all.
• You have medical expenses which aren't covered by your health insurance.
• You are a first-time home buyer and need it for a down payment: the bigger the down, the better your mortgage rate.
• You plan on making substantially equal payments (SEPP).

Roth IRA accounts are flexible investment vehicles and make for a very smart complement to your early retirement dreams. Before you definitively retire early, consult with a financial advisor to make sure you are making the right decisions.

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