Where Should I Put My IRA Money Now?
Individual Retirement Accounts (IRAs) are an essential element of any comprehensive retirement plan, offering tax-deferred savings solutions to secure the future.
Traditional and Roth IRAs provide different benefits. Traditional IRAs allow you to receive tax breaks now for contributions that qualify for deduction, deferring taxes until you withdraw money at retirement time.
Stocks
Stocks (commonly referred to as company shares or equities) are an essential component of most investors’ portfolios. Companies issue stock to raise capital, while shareholders benefit from both its growth (with stock prices increasing over time) and dividend payments distributed from profits of the company to them, according to the U.S. Securities and Exchange Commission.
Long-term returns of stocks average 10% annually – helping investors build up their investments and outpace inflation.
There are various rules of thumb available to help determine how much of your IRA should be invested in stocks. One popular approach is subtracting one’s age from 100, suggesting that young investors should put more into stocks than bonds. But ultimately it’s important to consider your personal risk tolerance, investment goals and financial circumstances before making this decision.
Bonds
Once you’ve accomplished Baby Step 3–saving three to six months’ expenses in an emergency fund, using the debt snowball method to pay off debt, and maxing out your 401(k)/IRA contributions–it’s important to determine where to put any extra money. A savings account would lose purchasing power over time due to inflation.
Instead, invest in assets with long-term returns such as bonds that pay a fixed interest rate until their maturity date. Bonds also help balance your portfolio’s risk profile by providing predictable interest payments at regular intervals until maturity date.
Target-date mutual funds like Fidelity’s 2060 fund provide another popular choice; these will automatically rebalance and shift to lower risk investments as you approach retirement. They are commonplace in workplace retirement plans but offer more choices if purchased as an IRA.
Money Markets
Money market accounts provide a secure and liquid savings option with higher interest rates than savings accounts and allow you to write checks directly from them. They’re an invaluable addition to any portfolio because they provide peace of mind in case a stock or bond investment experiences temporary decline.
An IRA money market account may be an ideal solution when seeking to balance your retirement nest egg between growth-oriented investments and cash and other assets that provide stability during unexpected market volatility. Keep in mind, though, that inflation will still eat away at its purchasing power annually.
Choose from an array of FDIC-insured money market accounts offering competitive interest rates and focus more on annual percentage yield (APY) when comparing accounts – it will give an accurate reflection.
Other Assets
Individual Retirement Accounts, commonly referred to as IRAs, offer tax-advantaged savings solutions for retirement. There are two basic kinds of IRAs – traditional and Roth. In a traditional IRA, contributions are pre-tax and you will owe taxes when withdrawing them; with a Roth account contributions are after tax but you get to withdraw them tax free upon retirement withdrawal.
An Individual Retirement Account, or IRA, does have some restrictions as to what can be put in. No life insurance policies can be held in an IRA and collectibles such as art works, rugs and precious metals should generally be avoided in general; foreign investments (excluding ADRs ) are limited and derivative trading including ratio spreads and naked call writing is banned by the IRS.
If you don’t have the time or expertise to choose your own IRA investments, a professionally managed target date or asset allocation fund could provide an appropriate investment mix over time and may offer lower fees than fully customized portfolios.
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