You are probably already well aware that it is important to
start saving for retirement as soon as possible. This is advice that gets
drilled into our heads…but, unfortunately, it is also advice that not a lot of
us know how to actually follow. The good news, however, is that planning for
retirement isn’t all that difficult, especially not if you take out an IRA.
IRAs, in case you have not heard of them, are individual retirement accounts. They offer people an easy way to save money for retirement
by putting funds into an account that limits how often and how much you can
deposit and access.
The money that you put into your IRA is put to good use by
being applied to various investment types of your choosing. These might include
stocks, mutual funds, bonds, and various other types of assets.
Hopefully, now you understand general IRAs a bit better, but
you should also realize that there are various types of IRAs to choose from and
that it’s important to pick the right type to meet your needs and goals.
Traditional IRAs
To start off with, the most common and basic type of IRAs is
the traditional IRA. With this account, you are asked to pay taxes on the money
you put in the IRA, but only when you withdraw funds from the IRA. Any money
you put in and do not withdraw is tax deferred.
You will have to start making withdrawals once you reach the
age of 70 and a half, but, if you want, you can start much earlier, at age 59
and a half, without incurring a penalty. If you make any withdrawals from your
IRA before this age, however, you will have to pay a penalty, as well as taxes
on the funds.
When you do start making your withdrawals, this can often
help to lower your income, thereby potentially putting you into a lower tax
bracket and causing you to pay less in taxes.
With traditional IRAs, there are limits placed on your
contributions based on how much you earned and your age. Your financial adviser
can help you to determine the limits that you must obey if you open one of
these accounts.
Other
Types of IRAs
In addition to traditional IRAs, there are also various
other IRA types to choose from, including:
·
Roth IRAs (Require you to pay taxes on initial
investments and make future withdrawals tax free)
·
SEP IRAs (Are used by business owners with
employees, the self-employed, or those with freelance income)
·
Simple IRAs (Allows employers an easy way to
contribute to and match their employees’ retirement funds)
·
Self-Directed IRAs (Allows you to control your
own investments)
The best way to determine if an IRA is the right fit for
you, and, if so, which type, is to seek help and advice from a financial
planner.
No comments:
Post a Comment