About Money Market IRA
A money market IRA is a retirement account with special tax benefits that invests the money in a money market account. You can open it at a bank, credit union or other financial institution.
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Types
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You can have a traditional IRA or a Roth IRA that invests in a money market account. Money contributed to a traditional money market IRA can be deducted from your taxes but will be taxed when you withdraw it. Money contributed to a Roth money market IRA is not tax deductible but can be withdrawn tax free at retirement.
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Size
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Your contributions to a money market IRA are limited by the smaller of your taxable income or the annual contribution limit. For 2009, the contribution is limited to $5,000 per person if you are under age 50 and $6,000 if you are 50 or older.
Limitations
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You cannot withdraw the money from your money market IRA before you turn 59-1/2 unless you have a hardship exemption like a permanent disability.
Benefits
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Money market accounts are FDIC insured for up to $250,000, so if the bank goes out of business your money will be protected.
Warning
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Over the long term, riskier investments like stocks and mutual funds will have a higher rate of return than more secure investments like money market accounts. Thus, you may miss out on higher returns if you invest your retirement savings in a money market account.
References
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