Have you been working long hours, surviving, but wondering where your money goes? Do you love to travel and eat, hoping to sustain that lifestyle? Maybe you haven’t quite thought of retiring yet, since you’re still going strong, but that’s worth even more of a reason to look into IRAs.
First of all, an IRA is an individual retirement account that holds savings over time and can have tax benefits depending on the type of IRA. There are many benefits to setting aside money in an IRA and using it to invest in bonds, mutual funds, and stocks so you can withdraw the income for retirement.
Advantages of opening an IRA
The many benefits of IRAs include having your money in the account be tax-deductible as long as they meet IRS requirements. This also decreases your current annual taxes as a short-term bonus too. IRAs can grow to be tax-free or have the taxes be deferred where you don’t have to pay the taxes now but until a later time. Since when people retire, they may have lower income, your money then may be taxed at a lower rate which benefits you when IRA money is withdrawn for retirement.
Being aware of how you can leverage your IRAs can help you become tax-advantaged. How may you ask? The money you put aside in your IRA will differentiate from a normal brokerage account as the income earned can compound annually without being taxed until you take the money out for retirement.
Types of IRAs
In a traditional IRA, you can contribute up to $5,500 a year, even after whatever amount you put into your 401(k). This allows you to save even more in addition to employer-sponsored plans. Knowing how to maximize your benefits for retirement will be worth it as your future self will thank you. Putting money into a traditional IRA may alleviate income tax on it, and only have it applied when your savings are withdrawn. You may have a lower income tax rate too which can be beneficial in the long run.
On Roth IRAs, you pay the tax up front without the tax-deduction but then when you withdraw the money, it can become tax-free. Now don’t you feel like Uncle Sam is taking less of your hard-earning savings?
Contributing consistently to an IRA is key so your money has more time to grow. Roth IRAs can even be taken out if need be at any time since you already paid the taxes so there is no penalty. This can be a safety net for you in case anything happens and being prepared is always good!
Benefits of Long-Term Planning
No matter if you already have a 401(k), starting an IRA will be to your advantage for retirement. It really can add up if you invest money in it on a consistent basis by setting aside savings in the account.
Roth IRAs can be beneficial to you mostly because the money you take out in retirement will be tax-free and that’s when you will need it the most. Compounding over decades and decades may allow you to pursue your goals and also offer you the flexibility in the chance there is a rainy day.
Better be safe than sorry, right?
In this world where a lot of the money goes toward spending on our wants and not always needs, long-term financial planning will be a step up for you when everyone else struggles to address their needs during retirement. Regardless of whichever type of IRA you choose, it can still be used to your advantage depending on what you choose to do with it based on your current income situation. Looking more into the details can aid you in determining the the plans that are suitable for you..
Money that you put into a Roth IRA cannot be taken out in the first five years, but when you withdraw it from the account after age 59 and a half, then that money will not be taxable.
A Roth IRA is based on how much you make now, but a traditional IRA is not income-based. Whichever one you choose will help you supplement your 401(k), if you have one already, to put you in a great spot for retirement.
For traditional IRAs, you cannot make contributions after the age of 70 and a half, but the initial money you put into the account may be tax-deductible and offer tax-free growth on your investments.
Overcoming Your Financial Challenges
IRAs, in general, can help your savings grow by compounding and benefits you more than putting your earnings into a taxable account. It is estimated that you may need around 85% of your income that you made before retiring when you actually go into retirement. Being conscious of your spending habits now and saving your earnings by putting them into an IRA can be beneficial to you in the long run.
We know that there are many financial obstacles to overcome with various loans, debt, living costs, and other expenditures, but being taxed in a disadvantageous position is no way to live! Spend some time now to contribute to your IRA, although it can be challenging, but years down the road, you may be glad you did. Invest today in your future.
At M3 we’re big believers in helping you address your financial goals while living inside your means. To learn how you can pursue your financial goals check out our free goal calculator and planner here:
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