IRA Investing is how people invest for their retirement. IRA stands for
Individual Retirement Account. So when you are IRA investing, you’re
setting money aside for your individual retirement. The IRA allows the
investor to defer and even eliminate taxes at retirement, depending on
which IRA account they choose.
Roth IRA Investing allows the retirement saver to accumulate taxed money
to continue to grow without being taxed on any gains before and after
retirement at age 59 ½. The main stipulation is that the IRA account has
to be held for a minimum of 5 years. These are very popular due to the
tax free distribution at retirement.
Traditional IRA Investing allows the retirement saver to reduce their
current taxes by writing off the investment thereby deferring taxes
until distribution at or after age 59 ½. People with higher incomes tend
to use this type of IRA because it may save them taxes on their incomes
vs. the Roth IRA which does not offer income tax savings today.
In both of these IRA accounts there is usually a 10%
penalty for early withdraws before age 59 ½.
Many people confuse IRA investing accounts with the investments. The IRA
investing account is the retirement plan, and many different investments
are allowed for these accounts. Most people use Mutual Funds or Stocks &
Bonds for their IRA investment accounts. However, there are lots of
other investments that qualify for IRA’s including Certificates of
Deposit (CD’s) and, Real Estate Investment Trusts (REITS).
All of the above mentioned investments can also be bought outside IRA
accounts in what is known as “Cash Accounts”. These accounts do not
enjoy the tax advantages of IRA accounts, but offer liquidity without
penalty for withdrawals before retirement age.
With the future of Social Security benefits in question, it is important
that we plan an IRA investing account that suits our individual needs
while we are still working so we can be financially secure in our
retirement years.
