Money Management

7 Things to Know About IRAs

For many adults, planning for the future is a challenging task. Planning for retirement is even much more challenging, given the many ways there are to save, plan, and invest. Some of the challenges come from which direction to take with investing for retirement, whereas some are extra cautious with investing hard earned money into something that may or may not give the returns they need to flourish in retirement. While there are many options for choosing a proper avenue for retirement, there are some choices that may benefit you and your financial situation whereas other options may not be the best, given your situation. Many individuals select a financial future and path based off what their employer offers and while this is a great start, there are options that can be more beneficial than others. An IRA is a retirement plan that you can use to save for the future, while having certain flexibilities that other plans may not offer. Before selecting if an IRA is right for you, make sure to do your research and ask a financial professional prior to making a selection with an IRA. Listed below are seven things you should know about IRAs.

1. Search for the Best Options.

When it comes to saving for your retirement, starting as early as possible is one of the best things you can do for your future. The amount of interest that accrues over decades of saving and putting money away adds up when the golden years come around so make sure to take any opportunity you can when you can. IRAs are a great option for a young adult, middle aged adult, and even an adult who is a few years away from retirement and given your financial situation, your investment amount could vary. If you are interested in saving with an IRA, consider asking a financial advisor or tax professional so that you can make the best decision based on your financial goals and outlook into retirement.l

2. Save Smart, Avoid Taxes.

A great thing about investing with IRAs is that you can have great benefits throughout the years based on what you give in to your IRA. The benefits obviously can be seen in your annual report and long-term outlook, but one hidden benefit that many tend to overlook is from taxes. Every year when you submit your taxes, there are certain things you pay for and certain things you do not. When you put into an IRA, you actually are given a great reprieve in that the amount of money you invest is actually subtracted from your tax liability. This is a traditional IRA and while being taxed every year may not seem like much in the short term, over the course of 40 years of working you could save upwards of $300,000 just by avoiding taxation if you give the greatest amount allowed every year. The trick of this is when you take the money out, which is when you will see the taxes, but it is unlikely that you will accrue as much as you will save in the long run.

3. Get on Board with an Employer Match.

You spend an entire career earning paychecks from your employer. Many large companies offer great benefits packages, but when you get onboard of a company, it is best to research their employer contributions to an IRA plan. The great thing about many of these plans is that when you invest in a certain amount, many employers will match up to a certain amount. While four percent of what you give may not seem like much, consider this a four percent contribution to your retirement years that you did not have before. In addition, four percent when added over the course of 40 years, with the inclusion of interest really can add up after a while. Take any opportunity you can to get into an employer matched IRA if it benefits you.

4. IRAs Have Restrictions.

The whole point of having a retirement account is to save for your retirement. When you have been investing for a number of years or decades, it is easy to see the amount of money you have accrued and want to take it all out (for whatever reason you may have), but this is where having this type of account can help you. There are restrictions, or fees and taxes if you withdrawal from your IRA and while there may be a real need for doing this, you are taxed heavily so that it deters you from doing this. When you take out money, whether it is a small amount or a large amount, you are taking away from a large fund and when a large fund gains interest every year, the money you take out significantly can set you back from your goal. Consider discussing some of the restrictions with your tax advisor or financial planner so that you are informed about all the rules with the IRA accounts.

5. Open an IRA Account 

Based off your Family Needs.

For a general sense, you need actual income every year in order to contribute and open an IRA account. Uncle Sam will not allow you to open an account usually if you were a stay at home mom or dad so be mindful of this rule. However, if you are interested in opening a savings plan in the form of an IRA, consider steering away from a traditional IRA or Roth IRA and try opening what is called a Spouse IRA. This is for individuals who want their own retirement account even though they did not work the prior year. This allows for flexibility for families who have stay at home moms and dads who may make a little money here or there, but not enough to report on taxes or disposable income. Consider discussing the spousal IRA with your financial planner so that you can get more of the benefits of opening this savings plan.

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