Retirement investing is one great way to secure a good life after we retire from our jobs. There are several options on what to invest for our retirement years. There would be savings accounts and, of course, retirement plans. Aside from your 401(k), it is best that we get an Individual Retirement Account – more popularly known as IRA. IRA’s are popular because it provides great tax incentives to account holders. Some types of IRA, like the Traditional IRA, offer tax free contributions, while a Roth IRA offers tax free distributions. IRA’s can be categorized as a savings account, so we can say that with IRA’s you can enjoy a tax free retirement and tax free savings account as well.
Using a Roth IRA
Perhaps the most popular choice is the Roth IRA. Named after Senator William V. Roth of Delaware, this IRA grants tax free distributions and tax free growth to its account owners. How to open a Roth IRA is really quite easy. The rules governing this IRA, with regards to eligibility, are as simple as it can be. In fact, all working individuals that receive compensations taxed by the government can open a Roth account. Although the right to full contribution with Roth is limited according to an individual’s modified adjusted gross income:
- $107,000 – $122,000 for single filers, head of households, married couples filing separately and not living together.
- $169,000 – $179,000 for joint filers.
- $10,000 for married couples filing separately and living together.
Regardless of age, one can readily contribute to Roth anytime. $5,000 will be the maximum amount for contribution, but for individuals that are 50 years old and above they will enjoy an additional $1,000 to the $5,000 for a total of $6,000 as their IRA catch-up limit.
Avoiding Penalties & Fees
To avoid any unnecessary fees and penalties with withdrawals, there are two maturity conditions. First is that the initial withdrawal should be done after 5 tax years from establishment of account. And second is that it should be done when you are 59 ½ years old. There will be exceptions to early withdrawal penalties for qualified IRA hardships, but in cases where the qualifications are not met, a 10% penalty shall be imposed.
To maximize returns you should look for the best IRA rates out there. There are several online discount brokers that offer very competitive rates. You should put much concern about the Roth IRA fees that they charge with their account holders. If you can find firms that include in their services no fee Roth IRA then that would be one great find. Avoiding fees as much as possible will aid in increasing the rate of returns from your IRA.
Investing in your retirement early on is very important. Not only that we secure a good post-employment life for ourselves, we also save our loved ones from the possible financial constraints that we might give them because of the lack of capability to provide for ourselves. We might not get a lavish life with this, but at least we get a better one.