Saving for retirement using an Individual Retirement Account (IRA) can provide tax advantages. Any earnings generated inside an IRA typically won’t be subject to taxes until it comes time to withdraw them, giving you ample tax-saving potential.
You have various options available to you for opening an IRA online with brokers, robo-advisors and other financial institutions that could provide a variety of investment options with lower fees. All may help you meet your goals faster.
Tax-Advantaged Savings
An Individual Retirement Account, or IRA, provides its users with several distinct advantages over other retirement savings accounts: tax benefits. Contributors to an IRA may often be eligible to deduct contributions from taxes while investments grow tax-deferred until withdrawals occur at retirement age.
People with traditional IRAs can deduct contributions up to an allowable limit, while Roth IRA holders may be eligible to withdraw funds without incurring taxes if their current tax bracket falls into one of the lower income tax brackets. Any withdrawals before age 59 1/2 typically incur a 10% tax penalty; there may be exceptions but those are usually more complex in nature than expected.
An Individual Retirement Account (IRA) allows people to sidestep some of the 401(k)’s drawbacks, such as limited investment options and being treated more as a participant than an owner. You can manage your IRA through a broker or robo-advisor who can help select investments suited for your financial goals, risk tolerance and retirement timeframe.
More Investment Options
An IRA typically provides more investment options than a 401(k). That is because many brokerage firms offer traditional and Roth IRA accounts with competitive terms, including low fees.
You should have access to various forms of investment vehicles such as stocks, bonds and mutual funds; perhaps even opening an account that supports options trading. Your asset allocation could determine up to 90% of your total return.
Target-date funds offer an effective starting point, with their automatic rebalancing and shift towards more conservative investments as retirement approaches. You could also explore robo-advisors such as Betterment who charge a flat fee of 0.25 percent to manage your portfolio; they provide automated rebalancing, tax loss harvesting and other features at no additional charge – perfect for self-employed or those no longer able to contribute to employer plans. These platforms require at least $100,000 as initial investments so could also make sense as options for self-employed or those no longer able to contribute as employer sponsored plans don’t.
Tax-Free Earnings
IRAs offer tax benefits to encourage savings and investment growth. Contributions made to traditional IRAs are federally tax-deductible while earnings accumulate tax-deferred until retirement withdrawals occur; with Roth IRAs, contributions made using after-tax dollars are tax-free and all withdrawals tax free.
If your workplace-based retirement plan contributions have reached their maximum contribution limits, an IRA offers another way for you to save more. Furthermore, an IRA is also a good choice if you’ve recently switched jobs or become self-employed; its flexibility could help you meet your retirement savings goals more quickly.
There are various options for creating an Individual Retirement Account (IRA). When researching providers, be sure to compare total fees and expenses, investment selection options and sign-up promotions before making your selection. In addition, confirm if they provide direct trustee-to-trustee transfers that take less than three business days between accounts.
More Control Over Your Money
An Individual Retirement Account, or IRA, can be established at most banks, brokerage firms and investment advisors. An IRA gives you more investment choices than employer-sponsored retirement plans that often are limited to specific stocks and bonds; from mutual funds to individual securities like stocks and bonds.
If you are self-employed or the owner of a small business, an SEP or SIMPLE IRA could be the right solution for you. These accounts offer higher contribution limits for employees as well as owners as well as tax deductible contributions.
Doing your own financial planning doesn’t need to be costly if you use online brokers such as Firstrade that provide no transaction-fee mutual funds and allow you to buy and sell various financial products with no fees attached. Or consider target-date funds–mutual funds designed specifically to assist your retirement and automatically adjusts over time so your portfolio takes on less risk as time passes–that offer low transaction costs like Firstrade but can also be purchased directly through an IRA account.
