Last chance to fund your 2008 IRA

It’s almost April 15th — the deadline for filing your 2008 tax return. But it’s also the deadline to make an IRA contribution for 2008. Don’t let your fear of the market prevent you from taking advantage of the chance to set aside tax-advantaged money before it’s too late.

Many people don’t realize you can contribute to an IRA or a Roth IRA even if you have a 401(k) or other retirement plan at work. Here are a few other commonly asked questions about IRAs. Responses are from Fidelity Investments, a leading provider of these investments.

Q. Should I skip my IRA contribution this year because of the wild swings in the stock market?
A. Experts say an IRA is still one of the best tax-advantaged vehicles for retirement savings in any market. If you can’t stomach the risks associated with stocks, you can always invest in CDs, bond funds and money market funds in addition to long-term equity funds–although in the long run you’ll be better off with at least some exposure to stocks.
Fidelity likes to use this example: An investor who makes a single contribution of $5,000 to an IRA this year may have more than $53,000 in 35 years, assuming an annual rate of return of 7%. (As you read here last week, stocks have yet to return less than 8.5% over any 30-year period in modern stock market history.)

Q. I just lost my job. What should I do with the 401(k) I have with my former employer?
A. You have several choices.

Leave it with your former employer’s plan
Move the assets to a new employer’s plan once you secure a job
Roll over the assets to an IRA

Whatever you do, don’t cash out your 401(k) when you leave your job. You get socked with penalties (10%) and taxes for early withdrawal. Plus you miss out on the potential for long-term earnings growth. Better to consider one of the three options listed above. CLICK HERE for info from the IRS.

Q. What’s the difference between a Roth IRA and a traditional IRA?
A. A Roth IRA offers federally tax-free growth. You’re funding this IRA with money you’ve already paid tax on — and you’ll withdraw it with no tax consequence. A traditional IRA is a good option if you’re trying to lower your taxable income now. Traditional IRAs are funded with money that is often deductible from your current tax return. So you get a break upfront now — but have to pay tax on the funds when you pull them out in retirement. In both cases, there are eligibility requirements so go to Fidelity’s IRA EVALUATOR to see if you’re eligible and which investment might be best for you.

MORE INFO: See my columns for other ideas on retirement savings: