When you start looking at what you are going to be doing in your retirement, your first question should be how will you live? Although some countries offer their citizens a regular superannuation payment, not all do, and for most that do it is only enough to cover basic expenses but not enough to allow you to travel or get out and enjoy life. It certainly isn’t enough to cover emergencies that come up.
For most people giving up work is something that will require savings in order to enjoy a financially secure retirement, and for this you can look towards setting up an IRA – which stands for an Individual Retirement Account, or occasionally this may be interchanged with Individual Retirement Arrangements.
What Is An Individual Retirement Account?
An IRA is a special account that can be set up to assist you in making a financial investment for your retirement. One of the reasons why people will use this type of account is that it offers tax breaks for investing, and incentives to maintain the account until retirement age (usually 60 to 65 years).
Reviewing a comprehensive IRA guide with a great FAQ section will also highlight the penalties that may be applicable if you withdraw your funds from the account before you are 60. You should also be aware that by the age of 71 you will be required to start withdrawing your required minimum distribution or face hefty tax penalties. Once you start withdrawing you are no longer allowed to make contributions.
Should You Get Financial Advice?
Absolutely! Although you do not always need to consult with a financial advisor or broker in order to obtain investment advice, it is usually a good idea. In fact, research has shown that having good financial advice not only helps you to make better decisions, but actually increases your ability to seek out new investment opportunities https://www.frontiersin.org/articles/10.3389/fpsyg.2018.02419/full
Income Restrictions For Investment
With this type of account, you are only able to invest what the IRS considers to be “earned” income. This means that if you have inherited money, had a dividend payout from other investments or receive money for child support payments you are unable to use any of these sources to invest in an IRA. However, you can use income from self-employment or long-term disability payments, as well as any salary or wages earned.
Is There A Limit To Investment?
Although there are different types of IRA available, for most people they will be looking at a Traditional account or a Roth account. With these variations there is generally a limit of $6,000 per year that can be contributed to the fund (although this may alter from year to year).
Should I Do 401(k) or IRA?
You can actually do both, but there are limits to how much can be contributed to either. With a 401(k) investment you may find that your employer has a scheme where they will match your contributions, making this a great one to maximise your savings potential first. A 401(k) has a contribution limit of around $19,000 while an IRA has a contribution limit of around $6,000. Both have different tax status and differing benefits; you can get more information about this from your financial advisor, accountant or click here to see the IRS website for information.
Should I Consider A Self-Directed IRA?
Like anything to do with investment, the answer to this is “it depends”. The advantage to having a self-directed account is that you have a greater range of investment options available to you. With this type of speculation, you may be able to look at investment in markets like real estate and precious metals.
Obviously, one of the downsides to this option is that you will need to do your own research into finding secure ways to invest your funds, and not everyone has the time or expertise to be able to do this well enough to create a growth fund. You may find that your options may be restricted by your custodian, so it is certainly something to look into before moving into this style of account.
What About A Roth IRA?
This could be a great option if you are currently on a low income and anticipate moving into a higher tax bracket when you retire – which is often the case when low income earners start saving for their retirement early in life, you years of investment will often result in a very healthy retirement income.