5 Things to Know About IRAs
Most Americans aren’t adequately positioned for retirement—and approximately 46 percent of American families have no retirement savings at all.
The goal of retirement is becoming more and more unrealistic. But the first step to change is getting informed—specifically about IRAs.
Contributing to an IRA can make all the difference.
The most significant difference between a traditional IRA and a Roth IRA is the tax benefit associated with each. With a traditional IRA, most consumers make contributions that are tax-deductible. This means the contributions and subsequent withdrawals will be taxed at a later date. With a Roth IRA, the contributions are made with funds available after taxes have already been deducted. Funds collected from a Roth IRA are tax free and are not indicated as wages.
Things to know about an IRA:
- With an IRA, you’re in the driver’s seat—you decide which firm and investment vehicle get investment funds. You also decide which investment company would be the best suited.
- IRA accounts have lower administration fees than employer sponsored 401(k) plans. The money saved can be invested and grow your account much faster.
- You should make the maximum annual contribution to your IRA prior to investing in the employer sponsored 401(k) if you have both. This is because employer sponsored plans may have high expense ratios and limited options.
- IRAs offer a unique ability to withdraw money should a financial crisis arise—and with a Roth IRA it’s a penalty-free withdrawal.
- IRAs allow you to borrow money from the account and return it within 60 days with no withdrawal penalty. This allows for an additional layer of flexibility that is typically not available with a 401(k).
After a lifetime of hard work and dedication, Americans should be able to save enough to realize their financial goals. By properly utilizing IRAs, retirement doesn’t have to be a thing of the past.