Choosing the Best Type of IRA to Have
Selecting an IRA provider with low or no minimum account opening requirements and offers low-cost or even free funds should be one of your primary concerns when making major financial decisions.
Robo-advisors like SoFi Wealth offer an easy solution for setting and forgetting their portfolios. By asking a series of questions to develop your portfolio and doing all the investing for you, these robo-advisors provide a hassle-free investing experience that doesn’t require active involvement on your part.
Traditional IRA
Traditional IRAs allow you to gain tax benefits when contributing, including deductibility of contributions and postponing taxes on investment earnings until withdrawal in retirement.
But this benefit only lasts until age 73 when required minimum withdrawals must begin and taxes on those withdrawals at your current income tax rate must be paid on them.
As with any investment decision, when opening a traditional IRA you should carefully consider all fees when selecting an advisor or brokerage. When considering costs when selecting an advisor such as trading costs and annual fees along with custodian costs. Lower cost accounts would likely prove more cost effective; alternatively, consider using SoFi Wealth’s Robo Advisor which will create your portfolio based on responses to a few simple questions and manage all investing activities for you – they even offer commission free ETFs and mutual funds!
Roth IRA
Roth IRAs offer one key advantage over traditional IRAs: withdrawal of contributions and earnings tax-free at retirement age. This feature can significantly lower overall retirement income while decreasing taxes paid on other forms of income such as Social Security benefits and Medicare Parts B and D premiums.
Roth IRAs offer greater investment flexibility than traditional IRAs, including opening a self-directed Roth IRA (SDIRA), which allows you to manage your investments yourself rather than using professional money managers. SDIRAs enable diversification through investments like real estate and private equity that may not be easily available within traditional IRAs.
Roth IRAs offer another key advantage by not mandating mandatory minimum distributions (RMDs) at any age, which can help lower your tax bill upon retirement and make them an excellent option if you expect to fall into higher tax brackets upon leaving work.
Inherited IRA
An Inherited IRA is any account you inherit after the death of its original owner, such as traditional and Roth IRAs, rollover IRAs, SEP IRAs or SIMPLE IRAs as well as employer sponsored retirement plans such as 401(k)s or 403(b).
Beneficiaries of an Inherited IRA have various options available to them when taking distributions; the specific rules depend on your relationship to the deceased and whether or not they were spouse or non-spouse beneficiaries. You have several choices when taking distributions: lump sum distribution or taking required minimum distributions using either life expectancy or ten-year methods.
One of the great advantages of an IRA over regular brokerage accounts is its potential to earn compound interest, meaning its earnings are added back onto your principal balance and grow at an exponential pace over time. This compound interest gives your account added growth potential over time.
Rollover IRA
Rollover IRAs allow individuals to transfer funds from an employer-sponsored retirement account into an independent investment account. Many choose this method due to its convenience – having one central account can make managing investments much simpler.
Rollover IRAs provide investors with greater access to an array of investment options, such as mutual funds and ETFs. This can help diversify portfolios as they approach retirement and face required minimum distributions (RMDs).
Rollovers offer another advantage over taxable accounts: compound interest can significantly accelerate account balances. While taxable accounts might incur 20% in capital gains taxes every time their balance doubles, an IRA could have earned three times as much in interest over that same timeframe.
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