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What is IRA(Individual Retirement Account) | Why invest in IRA

An individual retirement account (IRA) allows you to build savings for retirement in a tax-advantaged way.

October 19, 2022 02:13PM

What is an IRA?


As people get older and start to think about “How much do I need to retire,” one way to grow your retirement savings is to invest in an IRA. 


Officially, IRA is defined as Individual Retirement Agreements. It is a long-term saving account that enables you to save for future retirement on a tax-free or tax-deferred basis. IRA is especially beneficial to people who do not have access to employer-sponsored retirement plans, such as 401(k).  


Three types of IRAs: 


1. Traditional IRA: tax-deferred retirement saving account. 


No tax on the portion of your income that you invested or on the additional value that your investment gained. When you withdraw your money from your traditional IRA account later, you will be taxed. In that way, your investment will grow in a tax-deferred way. 


  • Eligibility:

    • Any age



  • Distribution and withdrawals:

    • Minimum distributions required start at age 72

    • Penalty for withdrawals before age 59.5

 

[Use the Traditional IRA Calculator to see how much you could save. It will take into account your current marginal tax bracket, the expected growth of your investments and other factors.]



2. Roth IRA: tax-free retirement savings account


You invest with after-tax income, but no need to pay tax on additional value that your investment brings. You can withdraw your money tax-free in retirement. 


  • Eligibility:

    • Any age

    • The IRS prohibits individuals from contributing a Roth IRA if their modified adjusted gross income exceeds the cap, visit IRS



  • Distribution and withdrawals:

    • Minimum distributions required start at age 72

    • Penalty for withdrawals before age 59.5



3. SEP IRA and SIMPLE IRA: for self-employed and business owners


If you are self-employed, SEP IRAs (Simplified Employee Pension IRA) will help you save more for yourselves and your employees than a traditional or a Roth IRA. SEP IRA is a good plan for businesses that may experience good times and down times.


SIMPLE stands for Savings Incentive Match Plan for Employees, and it’s available for employers (including the self-employed) with 100 or fewer employees. Different from SEP IRA, employees can contribute to SIMPLE IRA. 



Why invest in an IRA?


IRAs are the most efficient retirement investment option.


You can contribute to both a 401(k) and an IRA to build up your nest egg


IRA offers more flexibility than a 401(k). You are limited to investing in the options offered by your employer with a 401(k). However, with an IRA, you can choose from a wide range of investment options.


IRAs typically have lower fees than 401(k)s. More money goes towards growing your savings. 


How to set up an IRA plan

You can set up an IRA by yourself or with a bank, life insurance company and other financial institution.

Talk to one of Hey Personal Assistant’s partnered certified retirement financial advisers! You will better understand the pros and cons of each type of IRA and find one that will fit into your overall retirement financial plan.

Everything is in control. Navigate live with a purpose. Call us to start your retirement planning now at (855) 440-7015.

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