Individual Retirement Accounts
Planning For The Future: Live Comfortably
The time will come when you no longer have a regular income coming into the home. How well you are able to live at this time, relies heavily on what provision you make for your retirement when you are younger.
This is not simply a case of 'should I or shouldn't I', as with making a credit card purchase. In this case, you can decide whether it is worth saving the money for the purchase, or having it immediately and paying the extra interest on your credit card.
Making plans for your retirement is much more serious. If you decide that you don't want to save now, then you cannot expect to have the same standard of living when you retire with no savings to fall back on.
Benefits of IRAs
There are a number of different ways to save for your retirement. An IRA is one of these. IRA stands for an Individual Retirement Account. You gather interest on the money you save through one of these and this will be compounded over time, tax free. Looking at one of the many on-line calculators that are available will help you to see the benefit of compounding interest.
The added benefit of a IRA, or Individual Retirement Account is that you do not pay tax on the money that you put into it as you save. The money you invest, grows tax free in your account. You will however pay taxes the amount when you begin to use it at a later date. The advantage of this is that when you begin to use this money, your rate of taxes should be lower that it is when you were saving the money. This is usually true for most people, but in some cases, it has not worked out that way, so examine the implications for you carefully.
A variation on the Individual Retirement Account, is the Roth IRA. You are allowed some tax-free withdrawals from this account as long as you satisfy a few conditions. You have to be aged 59 1/2 or over, and the money has to have been in the account for 5 years. You also have tax free withdrawals if the money is used for the purchase of a first home. Since the rules for IRA's change on a regular basis, you will want to discuss them with an investment adviser. Most banks and credit unions have someone who will help you for free.
When having a IRA account, fees matter. If you spend lots of money on fees, you won't be saving much. Use our Stock Trading Fee Chart to compare fees and minimum balance requirements between many brokerage firms.