IRA

Learn how to set up a traditional IRA.
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A traditional IRA (individual retirement account) is an account that you can open at a bank or at brokerage firm. When you put funds into this account you earmark them for retirement. There are a series of rules for IRAs. You cannot withdraw the money before you are fifty-nine and a half without receiving a penalty for early withdrawal. You will be taxed on your earnings when you withdraw the money from a traditional IRA.

Are There Contribution Limits for an IRA?

Since there are tax advantages associated with an IRA there are limits for your IRA. In 2015, you are limited to contributing $5500.00 a year. This limit counts towards both to traditional and Roth IRA contributions together. A good strategy for your retirement is to invest in your 401(k) so that you are taking full advantage of the employer match that is available. Then you will fully fund your IRA. After that you can contribute the remaining percentage into your 401(k) at work so that you are saving fifteen percent of your income for retirement. You can work up to this amount over the years. 

What Are the Advantages of a Traditional IRA?

The biggest advantage to a traditional IRA is that your contributions are made tax free. You can lower your taxable income by contributing to your IRA. The IRS allows you to make donations to your IRA until you file your previous year's taxes.

For example if you contribute money in January, you can count it towards last year’s income. However it may be easiest to contribute on a monthly basis to your IRA account, as this will make the process easier for you.

Where Should I Open an IRA?

When you choose where to open your IRA account, you need to think about the long term investments versus the risk you are putting your money in.

Most banks will offer IRAs that are CDs (Certificates of Deposit). The rates of return on CDs are very low, and you will be able to earn more money by choosing to open your IRA at a company that will allow you to put your money in a variety of mutual funds. You can do this through your financial advisor. If you do not have a financial advisor you need to find one.

How Do I Handle Rolling a 401(k) into an IRA?

You may choose to rollover a 401(k) from former employer into an IRA. The rollover will not count towards your annual contribution amount. If you have a traditional 401K) account, it is easier to go with a traditional IRA because you will not be expected to pay income taxes on the transaction, which you would if you moved it into a Roth IRA. This will give you more control over your retirement investments.

The key to retiring comfortably is to make regular contributions starting from a young age. Additionally, you should not spend a lot of time worrying about your retirement plan once you have made the investments. When you are in your twenties, you can choose the high growth funds, because you have time for the market to recover before you retire. As you get closer to retirement age, you will want to switch to more conservative investments to protect your money.If you want more investment options, you may also to consider a self-directed IRA, which allows you to invest in real estate as part of your IRA.

 If you do not qualify for a 401(k) currently, you should open an IRA and begin investing now. This will allow you to start saving for retirement right away. If you are confused about what to do, take the time to talk to a financial advisor.