An individual retirement account (IRA) is an account that can help make saving for retirement a more straightforward process. However, there are various IRA accounts available, so it is essential to compare and contrast each account option to find the best one to suits your needs.
There is much more to an IRA than just investing your money into an account and saving for the future. Learn more about the many advantages of an IRA and whether it is the right choice for you with Benzinga’s guide.
What is an IRA?
An IRA helps individuals save for the future and, as the name says, retirement — think of it as an individual retirement plan. In addition, you gain tax advantages that you do not get elsewhere, helping you boost your retirement savings. Any individual with an earned income can open an IRA account and enjoy the benefits, making IRAs a popular choice.
You can obtain an account through a bank, investment firm, an online brokerage or a personal broker. The choice is left to you, and with so many available, it can be a difficult one. However, it does mean there is a high chance you will find an account that suits your needs.
Examples of different IRAs include traditional IRAs, Roth IRAs and Simple IRAs. The rules and advantages to each IRA may vary, but the money invested usually cannot be withdrawn early without a tax penalty, so it is important to research the fees.
Why Should You Invest in an IRA?
Retirement may be a distant thought, but it is essential to plan at an early age to reap more benefits later. In addition, anyone with earned income can open an account and access all the benefits on offer. So why should you? Check out the top reason you should invest in an IRA.
- Tax advantages: Most traditional IRAs offer the advantage of tax-deferred growth, meaning no taxes will be paid on your earning contributions until you take your distributions at your retirement. The more you invest now, the more you can withdraw in the future and plan accordingly towards your retirement.
- Easy to set up: IRAs are accessible and easy for a person to set up as most people are eligible to open an account. All that is needed is a taxable income to be earned. In addition, there are no age limits, they are widely available, and you have the choice to manage your own investments or work with a professional for guidance.
- Your IRA is exclusively yours: Differing from an employer-sponsored retirement plan that can change based on the employer's choice and investment options (such as a 401k), your IRA is specifically yours to manage. You are offered thousands of investment options from stocks to bonds and many more. You have control at all times.
- Bankruptcy protection: Contributions are protected from creditors, but this can depend on the type of IRA. Simple IRAs and most rollover IRAs are protected from lenders in financial ruin irrespective of the fee.
- Inheritance: If funds are left in an IRA, they can be passed on to a beneficiary. However, you will need to withdraw the funds by December 31 of the 10th year following the IRA owner's passing.
Who Should Invest in an IRA?
The benefits of an IRA show that it is easy and accessible to open, and anyone with a taxable income can open an account. But some may benefit more than others. Take a look at our quick list of who should invest in an IRA.
- People with an excess of cash: An IRA is perfect for those with excess cash as it is a great place to save money that may be needed in the future. Leaving money sitting in a bank account can be pointless, and therefore, it could be more fruitful to have an IRA.
- People planning for the future: This is a great way to save and plan for the future (especially for the younger generation). The more invested earlier, the more you will benefit later on. It can also help to provide monetary discipline as saving money and adding to the account may encourage you to control your spending habits.
- Investors: It is another excellent way to invest in the future. Placing your cash in an account can produce benefits over time and, if you don’t have time to watch the account, it can be managed by a professional.
What to Look for in an IRA
It is vital that the IRA you choose supports your principles and needs, and this means there are a few things to look out for. First, ensure that your IRA is versatile and is provided with a range of options. This is important as you should consider how you want to invest your money and the different options you can use. It is also essential to pick a company you trust as the choice of IRAs is vast.
Significant comparisons consumers should make is analyzing the fees of the account provider, whether that be a broker or bank. An essential point to look out for is the small fees that you may not be aware of — inactivity fees, paper statement fees are ones to look out for. You don't want to be hit with an unwanted charge or charges.
Accounts can also require initial funding, which is sometimes a minimum of $500 to $1,000, so make sure you have the money set aside or are at least aware of the minimum deposit before you attempt to open the account.
Finally, determining the right type of account is essential. There are many different IRA options for individuals. Traditional IRAs allow tax-deductible contributions, Roth IRA contributions are made with after-tax funds, and Simple IRAs are available to small businesses with no other retirement plan. Do your research before making the best choice for you.
Lastly, research the amount of control you want over your investments as there can be penalties for actions against your assets.
Find an IRA
IRAs can be a worthwhile investment regardless of your current situation. Below you can review a list of Benzinga’s best IRAs.
Plan For Your Future
An IRA can be an excellent way to invest and plan for the future. With various choices, control and advantages, there is more than likely an account type to suit your needs and provide a backup for retirement.
It is always important to do your research first and make sure the account you choose is right for you. Get started with Benzinga’s recommended IRAs and begin saving for retirement now.
Frequently Asked Questions
Is it better to have a 401(k) or IRA?
The answer depends on the specific needs of the consumer. An employer usually offers a 401k, and the employee will distribute a percentage of their salary into it. As a result, the individual will have less control over a 401(k). An IRA provides more power over the investment choices. They both grow tax-free over the years, but a 401(k) tends to allow higher annual contributions.
What are IRAs earning?
IRA earnings historically have delivered between 7% to 10% average annual returns for a Roth IRA. In addition, even small contributions are known to grow significantly over time.