If you’re looking for an effective method of saving for retirement, an individual retirement account is a good bet. Individual retirement accounts (IRAs) are marketed as a great way for ordinary investors to save for retirement. The accounts allow your retirement savings to grow tax-free for years until the money is needed for expenses in retirement. There are currently about 25.8 million IRAs holding $2.46 trillion in assets in financial institutions across the nation. Most financial institutions offer some type of IRA for their customers. Before opening an IRA, there are a few things that you should consider.
Contributions And Withdrawals
Before opening an IRA, you should understand the accounts conditions for contributions to and withdrawals from the accounts. Anyone can contribute to an IRA, regardless of income level. Congress has set the maximum annual contribution limit for an IRA at $5,500 per year, with a $1,000 additional catch-up contribution allowed annually if you’re over the age of 50. You have until April 15 of the following year to make the maximum contribution to the account. The accounts are funded with pre-tax dollars and withdrawals are taxed at the prevailing income tax rate when removed from the account during your retirement years.
When opening an IRA, you’ll have to designate a beneficiary to claim the funds if you should happen to pass away before you have used all of the money in the account. Any person you choose can be the beneficiary of the account. The beneficiary can be changed at any time by submitting new documentation with the IRA custodian. If your family situation changes, you can easily change your beneficiary with the stroke of a pen.
Most financial institutions offer a wide variety of investment options for IRAs. You could choose to invest in individual stocks, bonds, mutual funds, index funds, commodities, ETFs, or real estate. Before choosing an investment, it is important to do your research first. You’ll want to see how the investment has performed historically. You’ll also want to know what fees will be charged for the investment so you can calculate how much you’ll be paying over time. Some investment options have higher fees associated with them that will considerably reduce your returns on the account.
Get Your FREE Book Now
Enter your name and email to get the "365 Day Money Challenge" straight to your inbox.