Here is a little bit of financial education about IRA accounts. I hope you find it educative and don’t forget to save up for your retirement.
What is an IRA?
An Individual Retirement Account (IRA) provides either a tax-deferred or tax-free way
for you to save for retirement. There are many different types or IRAs, but Roth, Traditional, and Rollover IRAs are the most common.
An IRA is simply an account. In an IRA, some people invest in mutual funds, stocks, bonds and EFTs, while others choose bank products like CDs and money market accounts. Each IRA has certain eligibility requirements and each has unique benefits. Finding the right IRA for you will largely depend on which IRA you are eligible and which one offers the benefits most important to you.
How does an IRA work?
IRAs rely on the power of long-term tax-deferred compounding to provide your retirement savings to grow more quickly than in a taxable account. What this means for you is that when you earn interest, receive dividend, or sell an investment (ie mutual fund) for a gain, in an IRA, you won’t need to pay taxes on your earnings. Instead all taxes are deferred until you withdraw those earnings in your retirement. This means your money will be working harder for you and through the years the tax savings can really add up.
Why is an IRA important now?
Financial experts say that it could take up to 85% of your pre-tax annual income just to maintain a similar lifestyle in retirement. When you stop and think about it that’s quite a lot. Thus it is all the more important that you start savings for your retirement as early as possible.
Let me give you an example:
Let’s say we have two people, John – age 30, and Maria – age 40.
Also let’s assume an annual return of 8% (can be easily achieved)
John invests $5000 for 10 years
Maria invests $5000 for 10 years
Balance at 65:
John: $578,597
Maria: $268,002
As you can see even though both John and Maria contributed the same amount of money, by starting 10 years early John ended up with $300,00 more!
What are the ways I can invest in an IRA?
An IRA is just like most other accounts when it comes to how you invest your money. They give you the option to choose from various investment products such as mutual funds, stocks, bonds, ETFs, and well as bank products like CDs and money market accounts.
Alternatively if you want a more lucrative but “non-traditional” investment to add to your IRA account you may wish to look into managed Forex accounts. Check out the Forex section on this blog if you wish to explore this option.
One such IRA Managed Forex Account provider that easily comes to mind is Income Plus Asset Management, Inc. However, you will have to setup a self-directed IRA. As I said this is not a “traditional” option but your money will grow at a much higher rate than in bonds or CDS, etc.
Which IRA is right for you?
There are three common types of IRAs available:
1) Roth
2)Traditional
3)Rollover
Another option for the financially savvy is the Self-Directed IRA. A Self-Directed Individual Retirement Account is an IRA that requires the account owner to make investment decisions and investments on behalf of the retirement plan. IRS regulations require that either a qualified trustee, or custodian hold the IRA assets on behalf of the IRA owner. Generally the trustee/custodian will maintain the assets and all transaction and other records pertaining to them, file required IRS reports, issue client statements, assist in helping clients understand the rules and regulations pertaining to certain prohibited transactions, and perform other administrative duties on behalf of the Self-directed IRA owner for the life of the IRA account
To determine which one is best for you stay tuned to this blog as I will be discussing this very subject in my next posting.
Cheers,
Alan