Saving for retirement is one of the most crucial steps that an individual can take in his or her life, as it can ensure a happy and financially sound future. If you have to ask yourself, “What does IRA stand for ?”, then you are in desperate need of this article. There are numerous types of retirement savings plans to choose from, and one of the most popular types is an individual retirement account, known as an IRA. In order to contribute into an IRA, an individual needs to have some form of taxable income. This income can be from regular employment, self-employment or even alimony payments. The government has specific limits for how much any individual can put into an IRA in any given year. Individuals can choose one type of IRA or split their yearly contributions between several kinds of IRAs.
A traditional IRA is very common; as the only requirements are that the individual opening the account is under the age of 70 and has some form of taxable income. Funds that are allocated into a traditional IRA are considered pre-tax dollars, as they reduce the total amount of money that an individual will pay taxes for when they file their federal tax return. For example, an individual earning $50,000 and placing $5,000 in a traditional IRA will only have to pay taxes on $45,000 in income.
One specific type of IRA that is gaining popularity is a gold IRA. In this type of account, physical gold coins, bullion or bars are used to fund the account. This type of investment account is a bit more complicated, as there must be a third party involved that mitigates the account between the individual holding the account and a precious metals dealer. This person is referred to as the trustee of the retirement account. Given the high price of gold and other precious metals, this style of IRA is becoming more commonplace, but major brokerage firms still do not handle these accounts. Almost every trustee that handles this type of account arranges for storage of the precious metal at the Delaware Depository Service Company that is located in Wilmington, Delaware. There are several basic fees associated with this type of IRA, including a set-up fee for the initial transfer, a managing fee that is paid yearly for handling the paperwork related to the account and a yearly fee for the storage of the metals used in the account. Typical yearly fees range from $200-$500 on an IRA that is funded by gold or another precious metal. These fees are essential to compare when choosing the best IRA.
Another common type of IRA is the Roth IRA, which is similar to a traditional IRA, but the funds that are added to the account do not reduce an individual’s tax burden. For example, an individual earning $50,000 and contributing $5,000 to a Roth IRA will pay federal taxes on the entire $50,000 of income. The advantage to a Roth IRA is when the money is withdrawn during retirement; there is no tax liability for that income. This tax exclusion applies to both the principle amount that was put into the Roth IRA, as well as any and all money that has been earned by the account. Where a traditional IRA can save an individual money on their income taxes as they make contributions, a Roth IRA provides savings for the individual as they withdraw the money from the account.
An individual retirement account can provide extra money to contribute to living expenses during retirement. The different options available in IRA accounts allow individuals looking to save for retirement many options to compare. This lets each person choose the plan that best fits their needs, whether it is the immediate savings of a traditional IRA, the potential earnings of a gold IRA, or the long term savings of a Roth IRA.