Are IRAs Too Complex For You?

IRA’s or Individual Retirement Accounts are the corner stone of American retirement planning. Although there are many types of IRA’s, the two most important are the Traditional IRA and the Roth IRA. More people hold these accounts than any of the other types of IRA’s that you will find available.

Traditional IRA’s are funded by pre-tax income and have been popular since they were first made available in the 1980’s. The owner of the account simply transfers pre-tax dollars in to the account, up to a $5000 maximum yearly limit. Additional these funds must be US dollars and not other forms of assets, such as stocks or bonds. This set up is very simple, tax wise, because no taxes are levied or paid until the retirement period begins. You may also want to check this gold ira review for more info.

Roth IRA’s are a little more complex. Since tax is paid before being placed in the Roth IRA, withdrawing money is tax free. The complexity comes in the form of age brackets controlling the amount of eligible funds that may be placed in the Roth IRA. Those over 50 years of age can contribute a higher amount to their Roth IRA’s. These amounts have been updated and increased many times in recent years, so the account owner must stay up to date with current limits to make the best of these Investments.

When considering each type of IRA, it is important to understand the basic differences and what disadvantages exist. For example, Roth IRA’s are not tax deductible but on the other hand, they protect the owner against future tax increase. Tradition IRA holders pay the tax in the future so there is uncertainty about the future tax rate. Another item to consider is the ability to withdraw money, either voluntarily or involuntarily. In many cases, a penalty is paid for voluntary withdraws. At the end of the day, withdrawing moneys from retirement accounts carries a heavy cost at retirement time. Involuntary withdraws can occur in other ways, such as when the maximum retirement age is reached or when the account holder passes away. Although death is usually not the account holder’s problem, considering the effects on the estate or beneficiaries is important.

IRA’s can be complex, but are critical for planning one’s retirement. A little care and caution now will pay handsomely in the future when you are ready to enjoy the retirement life that you worked so hard to attain.

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