Is There Anything Better Than an IRA?
IRAs allow anyone with earned income to save for retirement in an tax-advantaged manner by investing their savings in mutual funds, ETFs and stocks.
Contrary to employer-sponsored plans such as 401(k), Individual Retirement Accounts can be opened by all earners and nonworking spouses alike, managed through online brokers or robo-advisors.
Investment accounts may experience losses over time; however, long-term investing has typically provided higher returns than short-term trading.
1. Tax-Advantaged Savings
Tax season is fast approaching and while it might not be your favorite season of the year, this could also be a valuable opportunity to maximize savings in an IRA account (both traditional and Roth). With their numerous tax-advantages, IRAs remain a popular choice for savers looking to maximize savings during tax season.
Workplace retirement plans often offer limited investment options like target-date funds; in contrast, an IRA offers access to more investments – particularly useful if you have maxed out your 401(k) contribution or lack access to an employer-sponsored plan.
Traditional and Roth IRA savings accounts and investment accounts offer tax-free interest growth; however, early withdrawal could incur penalties and taxes.
2. Flexibility
IRAs come in different styles that can meet many people’s retirement needs. Some allow tax deductible contributions, while some allow penalty-free withdrawals beginning at age 59 1/2. You can open one at any bank, brokerage or robo-advisor and invest your money in stocks, bonds or ETFs; NerdWallet’s editorial team rates online brokers and robo-advisors using 15 factors including account fees, minimums, investment options available via mobile apps capabilities and customer support – these rankings vary between banks, brokerages or robo-advisors so make sure that when choosing which robo-advisor you go with!
IRAs can serve as an excellent complement or replacement to employer-sponsored 401(k). Their primary advantage lies in tax savings; investments may be limited when compared with traditional broker accounts. It’s important to keep in mind, though, that your IRA investments could decline in value as the stock market fluctuates.
3. Tax-Free Withdrawals
An Individual Retirement Account, or IRA, provides an easy and tax-efficient way to begin or expand retirement savings, but your investments in it could still experience market fluctuations and reduce in value over time.
Dependent upon your age and circumstances, withdrawing funds from an IRA could be penalty-free; however, any money taken out prior to retirement must be included as part of your taxable income.
Your assets in an IRA are exposed to market risks, whether you invest in stocks, bonds or mutual funds. If you prefer active investing, look for an online broker or robo-advisor rated highly by NerdWallet editors and readers; such providers select investments based on your goals and investing time horizon while charging low fees.
4. Tax-Free Growth
One of the chief benefits of both traditional and Roth IRAs is tax-free growth of your investments; depending on your situation, this could be hugely advantageous.
Contrary to 401(k) plans, which only offer limited investment choices with higher fees than most brokerage accounts, IRAs give you greater options and many discount brokers and robo-advisors have $0 minimum accounts where you can open an IRA.
Anyone earning income can contribute to an IRA, though deductibility of contributions will decrease when reaching certain income thresholds. Withdrawals become penalty-free at age 59 1/2 (or earlier under special circumstances), though taxes will apply on early distributions (for more details, visit NerdWallet’s IRA guide).
5. Access
IRAs are readily available, with numerous providers providing robo-advisor services that help investors select investments based on their goals and investment horizon. Many also feature low or even no account minimums to encourage people to begin saving and investing right away.
Contrary to employer-sponsored retirement plans such as 401(k), 403(b), and 457 accounts, an IRA can be opened by you at any financial institution of your choosing on your own. These providers make the process easy – most only require your name, address, and Social Security Number before getting you going!
Your IRA funds can be withdrawn at any time, although if you withdraw before age 59 1/2 a 10% early withdrawal penalty (plus income taxes) applies. There may be exceptions to this rule as stated by the IRS.
Categorised in: Blog