An IRA or individual retirement account is just one of the many retirement account options available to American citizens. There are many types of IRA plans along with their respective benefits that make them a compelling choice for one’s retirement plan. Let’s go through them one by one and discover which IRA plan is best for a specific type of person and whatnot.
Benefits of Having IRA Plans
Most American citizens should be eligible and allowed to set up an IRA. Firstly, there aren’t any age limits for setting one up. Though it should be noted that a person’s ability to contribute to their IRA plan may be lessened based on their tax filing’s status and their respective amount of modified and adjust gross income.
IRAs are also accessible since you can set one up in a matter of minutes through numerous banks and brokerage firms. As with all investments, there are strategies and tips that a person can apply to maximize their gains from their IRA.
Other compelling reasons why an individual would love to open an IRA are its tax-free growth and tax deductions. Both types of IRAs (which will be further discussed later) offer assets that are tax-free growth. Additionally, a traditional IRA’s contributions are made with pre-tax dollars, meaning no taxes shall be imposed on the investments until the distribution.
The Two Most Popular Types of IRA Plans
These two types of IRA plans are the most popular ones because of their excellent tax-saving features along with ease of access and set up. Though there are other types of IRA plans in the market, these two are crowd favorites.
The Traditional IRA plan is the big daddy of the game. To this day, it still stands as the most popular IRA plan, and for good reason. The listed benefits above are just some of their benefits, but it does not end there.
The traditional IRA plan is best for those who may find their selves in a higher tax bracket right now than what they think they would be in their retirement phase. It is also great for employees who do not have any workplace-sponsored plan. Most banks and financial firms offer this plan, so accessibility shouldn’t be a problem too.
The Roth IRA is a great alternative to the traditional IRA because of its tax-saving features. Traditional IRAs already had excellent tax-saving features, but Roth IRAs offered even better ones like tax-free withdrawals, $7000 in maximum annual contribution, and many more.
Roth IRAs are best for individuals who may see their selves place in a higher tax bracket during their retirement. It is also a great choice if a person needs access to some of their money before their retirement age. Of course, that is not advisable, but having that option is good to know.
Tips to Know When Investing in IRA Plans
Like with all investment ventures, investing in IRA plans comes with its own sets of risks that you should know. It isn’t all sunshine and rainbows. An individual who does not know what they are getting into may find their selves ultimately at loss despite investing in an IRA that is supposed to save them by retirement.
- Get to know some basics about investing and assets allocation
Knowing the small things about finance and investing should be a common habit for those who are at the age of 25 and above. During these times is where an individual typically steps out of their comfort zone to find a job or two. This is also where one may pique interest in investment and retirement plans.
Doing ample research on certain terms and definitions along the realm of investment won’t hurt. The internet is an amazing place to start studying as it has amazing resources where one can really get to know the gist of investing and even seek professional help on what to do with their hard-earned cash.
- Do not hesitate to contact the pros
The talks of investing and IRAs can bore someone to death if they don’t know anything about the topic or scared to know more about it. If this becomes the case, then seeking professional help should be at their number one at their priority list since IRAs can be a real-life savior when a person retires.
There are numerous IRA providers and firms who are willing to help individuals out figure the best course of action when setting up an IRA.