When it comes to retirement investing, it’s possible you’re already making automatic contributions to your 401(k). This may seem like enough, but it’s far from your only retirement investment option.
An IRA, known as an individual retirement account, provides a unique way to invest and save for the future. Your options are to open a traditional IRA, a Roth IRA, or you can choose both of you prefer. There are even other options for small business owners and the self-employed.
You might be wondering, “What are the main benefits to opening a traditional or Roth IRA?” And you may wonder why this is important.
Continue reading to discover the benefits of IRA investing below.
IRA Accounts Are Easy to Set Up and Very Accessible
If you’re reading this, you probably know that Social Security isn’t going to be enough to cover your expenses in retirement. You’ll need some type of additional income source to supplement your Social Security payments. Many people turned to IRA investing to grow their nest egg.
Making contributions to an IRA is very easy. Some important facts to know include:
You must earn a taxable income in order to open and contribute to a traditional IRA account. Or your spouse must have a taxable income.
There isn’t an age limit for opening a Roth IRA account or contributing to one. Your tax filing status could potentially reduce the amount you can contribute. Your modified adjusted gross income also factors into this process.
It’s possible to open an IRA account online through your brokerage firm or bank. The wide majority of financial institutions make it easier than ever to properly manage your IRA account.
IRA account contributors have the opportunity to manage their investments on their own. Or if they prefer, they can receive strategic help and guidance from a paid financial professional. Another option is to take the automated approach, which automatically adds to your investments, monitors them, and re-balances them according to your predetermined goals.
Make the Most of Tax-Free or Tax-Deferred Advantages Offered by IRA
If you were to open a traditional IRA, you can grow this account month after month and year after year in a tax-deferred fashion. This is a key benefit that allows investors to grow their accounts tremendously through compounding interest.
Here’s how it works:
You’ll contribute up to $6000 per year into your IRA account. This money comes directly out of your paycheck and the IRS does not charge taxes on the income deposited into this particular account.
With a traditional IRA, all of your contributions are made into the account and our tax-deferred. This means you will not have to pay taxes on the income earned within this account until you begin taking regular distributions. You are allowed to start taking distributions at 59 ½ years old or older.
This also has an immediate benefit on your yearly income taxes. When you go to file your income taxes, you immediately deduct up to $6000 from your yearly income. You are allowed to duct the full amount contributed into the IRA.
So, if you were to deposit the full $6000, and you made $75,000 that year, you would only have to pay taxes on $69,000. See how that works?
Another option is to open a Roth IRA account. With this account, you are funding it with income that was already taxed by the IRS. So any growth earned within this account is yours to keep. Since the taxes were already paid before depositing the money into the account, you will not be taxed a second time.
An IRA Account Is Yours and Yours Alone – It Has Nothing to Do with Your Current or Former Employer
The Bureau of Labor Statistics told us that in 2021, only 61% of American workers had access to retirement plans sponsored by their employers. The most common version of this retirement plan is a 401(k). For those that do have a 401(k) or employer-sponsored plan, they are a bit different than opening a traditional or Roth IRA. And certain 401(k) accounts have their pitfalls as well.
As an example, when you contribute to a 401(k), you are not the owner of this account but you act as a participant. If your employer decides to change plans, or limit the investment options, or make other changes, you are forced to follow their rules because they own the account. Plus, if you were to leave your job, you will not be up to contribute to the 401(k) account any longer.
On the other hand, an IRA account is very different. You are the account owner, so it’s yours to do with as you please. You can contribute the maximum amount or just contribute the minimum purity open this account, you’ll have to rollover one of your old 401(k) accounts in order to fund the new IRA.
The IRA account is incredibly beneficial because it gives you the opportunity to save money for retirement. The last thing you need is to wake up one day when you’re old and unable to work and realize that you do not have enough money to survive.
Within an IRA account, there are possibly thousands of different options to invest your money wisely in order to have a well balanced portfolio with diversity. You can invest in ETFs, mutual funds, bonds, and stocks. And if you decide to open an alternative assets IRA, you can also invest in cryptocurrencies and precious metals including gold, silver, platinum, and palladium.
This is great because it puts more investment options under your control. It gives you the ability to put your dollars to work in potentially safer and more effective ways, which is great for all future retirees.
As you can see, investing in an IRA account is definitely a good idea. It helps you set up your retirement nest egg so that you can survive and thrive in the future. It guarantees that if you contribute enough money during your working years, you’ll have a much easier time paying your bills and living comfortably in retirement when you no longer work for your previous employer. Contributing to an IRA and investing in these assets is a great way to build a comfortable nest egg to protect your future.