Regardless of your age or financial position, it’s important to look toward the future. For example, you need to keep one eye on your retirement savings at all times. If you don’t, you could find yourself reaching retirement age without enough money to hang up your work boots. It goes without saying that you don’t want to be in this position.
There are many ways to save for retirement, with an IRA among the best. It doesn’t matter if you opt for a traditional or Roth IRA, you’ll soon realize that there are many advantages when compared to other options.
Note: retirement planning and estate planning go together hand in hand. This is something we’ve discussed on our website, with the following excerpt among the most important:
“At first glance, the concept of Individual Retirement Accounts (IRA), 401(k)’s and other retirement plans seems simple enough: A structured way to save for your golden years while deferring taxes on your growing nest egg. Unfortunately, that simple idea becomes one of the most complex areas of estate planning once IRS rules are applied.”
As you can see, despite the fact that an IRA has many benefits, there are a few challenges that you need to be aware of as you begin to save.
Here are some of the benefits that can work in your favor.
Tax-Free Growth
Regardless of which type of IRA you choose, tax-free growth is one of the biggest benefits. In short, this means that once the money is in the account you don’t have to worry about taxes on capital gains or dividends. This doesn’t mean you won’t pay taxes on the money you invest, as this will happen at some point, but the ability to grow your investment tax-free should never be overlooked.
Easy to Set Up
Unfortunately, many people shy away from saving for retirement because they don’t know how to get started. They’re under the impression that opening a retirement account is entirely too complicated.
This doesn’t hold true with an IRA. In fact, once you find a financial institution that offers these types of accounts, it will only take a few minutes of your time to get up and running.
As long as you understand what you’re getting into, such as how much money you can contribute to your IRA each year, everything will come together soon enough.
Withdrawals
When the time comes to withdrawal your money in the future, doing so is not nearly as difficult as some people make it out to be.
With a Roth IRA, for instance, there is no required withdrawal date. You can leave your money in the account for as long as you want, all the while letting it grow in a tax-free environment.
With a traditional IRA, you’re required to take required minimum distributions started at the age of 70 ½. Although this “forces your hand,” you don’t have to concern yourself with it until later in life.
Penalties
This isn’t a benefit, but is definitely something you need to know about. In short, there is a 10 percent penalty if you withdrawal money from an IRA before you reach the age of 59 ½.
In addition to the penalty, you’re required to pay taxes on the money if you’re withdrawing funds from a traditional IRA.
Plan for the Future
There is no better time than now to think about your future. This holds true both in regards to your retirement plan and estate plan.
If you’ve yet to download our report entitled “15 Common Reasons To Do Estate Planning,” you’ll want to do so in the near future. With this, you’ll gain a better understanding of why you need to create an estate plan today (not tomorrow).
There is a lot that goes into retirement planning, but the use of an IRA can help put your mind at ease. With this retirement account on your side, you can be confident that you’re saving enough money for retirement.
If you have any questions or concerns about retirement planning or estate planning, consult with a legal and/or financial professional to discuss your options.
- The Questions of Estate Planning, Part 6: Why - January 6, 2020
- The Questions of Estate Planning, Part 5: How - January 2, 2020
- The Questions of Estate Planning, Part 4: Where - December 30, 2019
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