You don’t have to become a financial wizard to plan for retirement, but there are some things that you should familiarize yourself with in order to maximize your retirement dollars in less time.
Have you heard about the IRA?
What is an IRA?
An IRA, or Individual Retirement Account, is an account set up through a financial institution that allows you to save for retirement with tax-free growth on a tax-deferred basis. As financial experts recommend that you need at least 85 percent of your pre-retirement income in retirement, the earlier you start one, the more likely it is that you’ll have what you need when the time comes to retire.
Setting up your IRA
When setting yourself up for retirement, there are a number of things that you should know about an IRA to help you set up an account more effectively. Whether you’re a seasoned financial vet or someone who is just beginning to contemplate life after a job, here are some things you should know about your IRA:
- It’s okay to have more than one
It is okay to have more than one retirement account; in general the more, the better. There is a limit to the amount of pre-tax money you can put into your IRA, however; looking for the one that has the highest interest rate will allow you to maximize your money while spreading it across a variety of investments.
- Contributions must be in cash
Any contribution made during the year must be done in cash. Any rollover of securities from one account to another does not fall under the same limitation, however. Follow your institution’s policy for contributions and rollovers for seamless transactions.
- Losses might be tax-deductible
Typically, the IRS allows you to deduct losses from your income, a benefit that other retirement accounts do not have. This can give you peace of mind that your savings is well protected, no matter how the market is performing.
- You don’t have to take RMD
For many retirement accounts, a Required Minimum Distribution, or RMD, must be taken annually when a registered holder reaches the age of 70. However, if you hold multiple IRAs, you can take the required minimum distribution total across all accounts, which allows more of your savings to grow until the time that you need it.
- IRAs have spousal benefits
One very significant benefit of IRAs is that spousal beneficiaries can inherit not only money, but the rights to the account, without going into probate. This means that your spouse can make contributions, made decisions about how to withdraw and use funds, and has access to all legal rights and responsibilities associated with your account. Non-spousal beneficiaries must pass through a little bit more red tape to have access to these same rights, but funds are for the most part available to them within five years of account transfer.
- IRA funds can be transferred or rolled over without tax penalties
If done correctly, IRA transfers or rollovers can be performed without tax penalties to the account owner. There is a limit on the number of times that this can be done in a year, and you must comply with your state tax laws and the conditions of your financial institution, who may charge a fee for this transaction, but it is possible to shelter much of your savings and earning potential without sharing too much with Uncle Sam.
- Your IRA account can become an annuity
If set up as an individual retirement annuity, your account can function as a means of support for you and your family well into your retirement years. Ask your financial advisor how to set your accounts up to perform in this manner, and you’ll be making a smart financial decision for your golden years.
- You can manage an IRA
Many retirement accounts are designed for “set it and forget it” function, but an IRA allows you to make investment changes and decisions that can help you make significant gains, depending on how much market knowledge you have. Setting up regular meetings with financial advisors and doing what you can to gain a little more market knowledge will help you maximize your earning potential.
- Investment options may be limited
Even though you do have some autonomy over investment choices, your options for what to invest your money in may be limited. Many people are interested in obtaining physical assets, such as a physical gold ira, and in today’s increasingly digital world, it is a smart idea to invest in physical assets such as gold, silver, and real estate. Check with your financial institution to see what types of assets you can place your money in, and shop around for the kind of portfolio that you really want to create.
- The earlier, the better
Many people wait until their mid forties to start thinking about retirement, but we cannot stress enough that earlier is better. Your children can start saving for retirement as soon as they get their first job, and it’s never too early to start imparting the wisdom of putting a few dollars away for a rainy day. Start early, watch the magic of compound interest do its work.
With this information, you’ll be able to make smart decisions about how to start structuring your retirement dollars so that you can truly enjoy your golden years. Start saving, and look forward to a brighter and better future!