Let's face it. Getting older is an honor (because not everyone does get old). And with that honor comes responsibilities.
One of those responsibilities is saving enough money to live on when you have no income. So that you are not a burden to your children or the government. AND, so that you can live ABOVE the poverty level. To be able to live indoors and have food on the table. All the simple luxuries of life.
One of the ways that you can save is an IRA.
IRA stands for Individual Retirement Account, and it's basically a savings account with tax breaks. Which makes it an ideal way to save cash for your retirement or your old…er age.
Many people think an IRA itself is an investment. It's not. It's just the basket in which you keep all of your stocks, bonds, mutual funds, and other assets.
Where do you set up an IRA?
You set one up at a financial institution that allows you to save for retirement on a tax-free or a tax-deferred basis. There are 3 main types and each has it's own advantages:
Traditional IRA – In this IRA, the contributions that you make may then be deducted on your tax return. Any earnings will be tax-deferred until you withdraw them in retirement. When retired, most retirees are in a lower tax bracket than they were pre-retirement. This means that the money may be taxed at a lower rate.
Roth IRA – In this IRA, you make contributions with money you've already paid taxes on (after-tax). Any earnings will grow tax-free, including tax-free withdrawals when you are retired, provided that you meet certain conditions (see below).
Rollover IRA – In this IRA, you contribute money that was ‘rolled over' from another qualified retirement plan. Rollovers involve moving eligible assets from an employer-sponsored plan, such as a 401(k) or 403(b), into an IRA.
Why invest in an IRA?
Besides the tax advantages, an IRA is a great way to supplement your current savings plan. When you invest your money, rather than leaving it in a savings account or CD, the potential for earnings is a lot higher. Word of caution – there is also an element of risk.
I gotta say…investing is not for the faint of heart cause your portfolio (group of investments will go up…and go down).
Investing is a long-term game…you just have to ride it out.
Roth IRA Conditions: A distribution from a Roth IRA is tax-free and penalty-free provided that the five-year aging requirement has been satisfied and one of the following conditions is met: age 59½, death, disability, or qualified first time home purchase.