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How To Save For Retirement

Individual Retirement Account

An IRA is a fund where money is periodically invested in order to grow over a period of time. Its main purpose is to build money for after retiring from the work force. An IRA is attractive because it allows saving and accumulating money that is free from tax collection.

Types of IRA accounts

Money from a traditional IRA account cannot be withdrawn before reaching 59 ½ years of age without getting penalized with fees plus interest, resulting in losing much of your accumulated savings. On the other hand, a Roth IRA is one that can be accessed at any time, yet if you take anything beyond the initial contribution amount from the account, you will be receive hefty fees.  A Roth account allows a bit more flexibility, there are also SEP and SIMPLE IRA accounts which are plans established by employers for the individual to contribute to the account.

Other reasons exist that allow someone to take funds out of an IRA before the age of 59 ½ without fees. These reasons include medical bills more than 7.5% of gross income, first time home purchase, paying for a disability occurrence, and paying for college expenses.

Investing In Your IRA

You can invest in your IRA with stocks and bonds, mutual funds, annuities, and also real estate. Making direct deposits of cash is also a way to gain interest. Once the IRA is tapped, the payments are taxed as income. These rates are usually lower after retirement, so all around it is better to wait until reaching 59 ½ years of age. Inputting  several kinds ofsavings deposits can diversify your portfolio; treasury bills, money market deposit accounts, money market funds, certificates of deposit, and stocks and bonds. Each of these produces different kinds of savings and requires variant amounts of initial deposit, so doing some research or consulting an adviser will ensure choosing the right ratio and combination for your IRA.

Stocks vs. Bonds

For longer-term investments, investing in stocks may be more feasible because there is future growth potential. This is because a stock is a partial ownership of a company, giving you the benefits of reaping profit just as they do, fractionalized of course. There is slight risk associated with market fluctuations. Bonds provide more protection against market afflictions, and are considered “safe” investments, and are great for long term investing. A bond is an amount of money you loan to an entity, usually for debt, then the loaner gets paid in interest throughout time.

Where To Open An IRA

An IRA can be opened through most financial institutions. Banks and brokerage firms both offer different types of IRAs for anyone interested in opening one. Within these financial institutions, a potential account holder can find help and advice onto what to include in their portfolio, and what types of stocks and/or bonds and mutual funds would suit their situation best.

By: Eva Cantillo