Is There Anything Better Than an IRA?
As their name implies, IRAs offer many tax advantages.
An Individual Retirement Account, or IRA, allows you to invest in multiple assets without being restricted by your employer’s choices.
Make saving a priority, so whenever you have extra cash set aside in an IRA.
1. Tax-Advantaged Savings
An Individual Retirement Account (IRA) offers you all of the tools and resources needed to reach your retirement goals, from growing savings at an attractive interest rate to protecting it against market fluctuations. FDIC-insured up to $250,000 per depositor and offering access to various investments such as stocks, bonds, CDs mutual funds and exchange-traded funds (ETFs).
Dependent upon the type of IRA you select, contributions could be free from taxes when made or tax-free withdrawals in retirement. Furthermore, changing jobs or retiring may allow you to rollover old 401(k) funds1 into an IRA to continue saving for retirement. But tax advantages are just one feature offered by these accounts; many offer much more. Read on!
2. Flexibility
IRAs allow more freedom than employer-sponsored retirement accounts, giving you the power to save at your own pace and choose among various investments – but keep in mind that some investments could experience declines in value.
Traditional and Roth IRAs, Simplified Employee Pension (SEP) IRAs and Savings Incentive Match Plan for Employees (SIMPLE) IRAs are all options that individuals or employers may set up to provide retirement security for themselves and/or employees of small businesses.
IRAs may invest in most publicly traded assets; however, some investments such as real estate, horses or intellectual property may not be permitted under the Internal Revenue Code and some custodians may impose additional restrictions.
3. Diversification
Diversification can help guard against major losses by diversifying your investments across various assets. Furthermore, diversification allows for higher risk-adjusted returns which means more money for each risk taken on each investment.
Diversify across asset classes, geographic locations or security durations to spread risk more evenly among your investments. For example, investing in both public and private airlines to mitigate against risks in one company or industry could prove useful when diversifying your portfolio; however, too much diversification could reduce overall returns by favoring lower-risk investments in your portfolio.
An Individual Retirement Account (IRA) allows you to diversify across an array of financial products, such as stocks, bonds, mutual funds and exchange-traded funds (ETFs). A self-directed IRA gives you access to other investment possibilities like real estate or commodity investments.
4. Growth Potential
IRAs provide the chance for long-term compounding. Any withdrawals before age 59 1/2 will incur both taxes and a 10% penalty, so these accounts should only be used as retirement savings vehicles.
Individuals with earned income can open an IRA at numerous banks, investment companies and robo-advisors. Furthermore, funds may also be transferred from existing workplace retirement accounts (401(k), etc) into their IRA if within contribution and income limits.
Traditional, Roth and SIMPLE IRAs are available to individuals, small business owners and self-employed people as retirement savings accounts (r) which have limits based on your income and filing status. You can use your IRA to invest in stocks and bonds as well as mutual funds and exchange-traded funds (ETFs), with some accounts permitting more flexible investing such as real estate or commodities.
5. Investment Options
IRAs tend to provide more investment options than employer plans like 401(k), which often restrict your choices to only a handful of funds. You have full control of your IRA investments or leave them up to experts by selecting target date or asset allocation funds which automatically build and manage portfolios based on retirement date and risk tolerance.
If you opt to manage your own investing decisions, look for an IRA account with low management and commission fees; these can have a dramatic effect on returns over time. Alternatively, consider opening an IRA with a robo-advisor which charges low annual fees to create and manage an ETF portfolio tailored specifically to your goals and risk tolerance.
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