Because of the unique tax advantages to an IRA (“Individual Retirement Account”), it is universally recommended as first step you should take in saving for your retirement.
Many people assume that they will be strictly limited in what they can invest their money in if the purpose is for funding an IRA. This is simply not true. An IRA investment can be in bonds, stocks, CD’s, precious metals, mutual funds . . . just about anything that you would want to invest in. If you open your IRA with a trusted broker, they will be happy to walk you through all of the options that you have in how to invest for your future.
There are a few different types of IRA’s and it is easy to get caught up in financial and technical speak when explaining them. At IRA.com we speak your language and we break the break the relative advantages and disadvantages of each type of IRA into language that we all understand.
Other investments you fund with money that you first paid taxes on. But with a Traditional IRA, you don’t pay taxes on the amount you contribute until you start taking distributions. In addition, the investment earnings on ALL types of IRA’s are not taxable until you start taking distributions.
With a traditional IRA you get a tax deduction the year you contribute to your plan. You can contribute up to $5,000 each year, or up to $6,000 if you are over 50 years old. The money grows in your IRA tax free and you can start withdrawing from it at age 59.5. When you withdraw money from your IRA it is taxed as regular income.
Unlike a traditional IRA, you do not get a tax deduction the year you contribute to your plan. However, when you start withdrawing money from your Roth IRA it is not taxed. This is especially useful if you are worried about what your tax braket will be when you retire. Just like a traditional IRA, your savings grow tax free while they are in your Roth IRA.
A rollover IRA is simply taking your employer sponsored retirement plan and moving it to a personal IRA. This is known as opening a Rollover IRA.