Investing in an IRA for Retirement
Selection of a traditional IRA or a ROTH IRA depends on your goals and needs. You may want to discuss the options with your financial or tax advisor, but in general, IRAs offer savings benefits. The main benefit for younger persons is a longer time to make contributions and to build up the account balance. IRA accounts are still excellent for older people also, but age qualifications may affect your decision about which type (traditional or ROTH) will best serve you.
There are significant differences between the traditional types of IRA accounts and the ROTH IRA. Your choice will depend on many things, including your age, income, and goals for the account.
- Traditional IRA – has contribution limits ($5,500/$6,500 if you are over 50 years old), no taxes on capital gains, dividends, distributions until you withdraw them. You must make withdrawals starting at age 70 1/2.
- Roth IRA – Contribution limits yearly same as traditional IRA, tax-free growth – you cannot deduct contributions but no tax owed on retirement withdrawals and no mandatory withdrawals at 70 1/2. Penalty-free withdrawals. Income limitations are high, over $131,000 for singles. You can withdraw for a home down payment without penalty.
- SEP IRA (a type of traditional IRA) for self-employed individuals & business owners, has higher contribution levels; has employer restrictions about contributions.
- SIMPLE IRA (a type of traditional IRA) similar to SEP IRA.
Important Goals to Set with My IRA
With all IRA Accounts, you should set end goals; what do you want this account to accomplish? For most people, the desired goals are growth over time and to provide additional income in retirement, and minimizing the tax bite is always a factor. Remember, however, that a traditional IRA can also be rolled over into a tax-advantaged ROTH IRA at a later date. Again, your financial advisor should be able to help you with goal setting and taxation specifics. As you think about goals, write them down, make a list to refer to over time. This will help you stay on track for accomplishing your goals over time.
- General Goals – These should be phrased in a positive light. Include a list of broad goals, such as dreams you have for the future, how you wish to live in retirement and what plans you might want for your heirs with regard to inheritance.
- Specific Goals – Put these on your written list. Include goals and a time frame for completion. Review these goals periodically and compare where you are at each review in relation to your ultimate goals. Always include numbers and dates. Use available calculation tools, and try to estimate your future living costs.
- Investment Goals – When you are younger, you can have aggressive investment goals, but as you get closer to retirement, switch over to conservative investments. Always beware of general market risks – nothing is guaranteed.
IRA differences are primarily financial benefits, such as tax deferments, penalty-free withdrawals or the ability to leave heirs a tax-free inheritance gift. Some limitations apply to each type, but in general, opening an IRA account is an excellent idea, especially for younger persons.
eOption, a division of Regal Securities, Inc., makes neither a recommendation as to the appropriateness of investing in any specific investment product nor is it providing any specific investment advice for any particular investor. Due to rapidly changing market conditions, and the complexity of investment decisions, supplemental information and sources may be required to make informed investment decisions. Clients should take special care in understanding all of the risks involved prior to investing.