Individual Retirement Accounts – Saving for Retirement
Preparing for retirement is a lengthy process that most people start decades in advance. One component of this savings process is setting up individual retirement accounts, or IRAs. These are one of the most reliable forms of investment, which can be an ideal supplement to a pension or 401(K) plan. To get started with learning more about whether or not IRAs are the right solution for your future retirement finances, it helps to look at their advantages and disadvantages. The advantages of IRAs include the fact that all contributions to these accounts are tax deferred. This means that you won’t have to pay any taxes on your account until you put it into use.
There are some situations in which your contributions to individual retirement accounts are tax deductible. You can check with the IRS or your personal accountant to learn more about how this works, because the rules tend to change almost every year. Another advantage of IRAs is that you can choose the investment allocation, whether it be certificates of deposit, stocks, bonds, or mutual funds. The amount of money that you invest is also left up to you, although it can be no more at this time than $5,000 per year, or $6,000 per year if you are over the age of 50. You can choose to stop paying money into this account at any time, unlike 401(K) plans or other retirement accounts.
Along with all of these benefits, there are a few disadvantages to think about as well, which is why it’s a good idea to balance out your individual retirement accounts with other types of savings as well. To begin with, if you access the money in your account before you reach retirement age, you will pay hefty fines. You may also not be able to deduct any contributions on your taxes, and will have to stick within the monetary limit for annual contributions.
To open up individual retirement accounts, you can get started by opening the account with your local bank or a brokerage firm. You can then discuss all of your various investment options as well, whether you want to invest for income, steady fixed-income, or growth returns. The provider of your IRA will help you choose the best types of funds to invest in, so that you can maximize your account to its best advantage. The main benefit of an IRA is that it can be so detailed and customized for each individual.