Different Types of IRAs to Consider

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Are you considering opening an IRA account? Many new investors find themselves asking what an IRA contribution is. IRA stands for individual retirement account here in the U.S. and basically, it is a kind of account designed to help people save money for retirement. These accounts offer many tax advantages. If you decide to open your account with a brokerage firm, you will have the ability to deposit money in your IRA and then use the cash to invest in things like mutual funds, real estate, stocks, bonds and various other assets.

IRA Account

There are several different types of IRA accounts out there for you to choose from, and each has different benefits, downsides, rules and unique aspects. The various accounts do have limits on how much money you are able to contribute each year. If these restrictions were not in place, those with a lot of money would be able to put all of their money in an IRA and avoid taxes. Below, you will find some information on types of IRAs so you can better understand how they work and decide which would be best for you. Also, check out Regal Assets if you want to learn more.

Traditional IRA

This IRA is the oldest kind. With this IRA account, you will contribute money and then receive a tax deduction. The money that you keep in this account will be free from taxes until you decide to withdraw it, and that could be some time into the future. The benefit that you will get to experience here is that you will be able to retain your interest income, dividends, capital gains and rents without ever having to send the IRS your money. Therefore, you will have more money constantly working for you.

You can take money out of the IRA account, and when you do so it is called an IRA distribution. You will then have to pay taxes on it as though the money was a paycheck. In addition, if you decide to tap into the money before you turn 59.5 years old, you will be required to pay a 10 percent penalty tax along with any other taxes you have that are due. Also, you must begin withdrawing cash when you’re 70 or older. There is a certain contribution limit for a Traditional IRA contribution, and it can change yearly so look into what the current amount is.

Another thing to note with this IRA account is that your adjusted gross income will determine whether or not you will be able to receive the tax deductions. If you are 50 or over, you will have the ability to make additional IRA contributions that are above the set limits. Extra deposits like these are called catch-up contributions.

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Roth IRA

This IRA was first introduced by the Taxpayer Relief Act of 1997. A Roth IRA can actually be more beneficial than a Traditional IRA. You will have the ability to contribute money to it; however you will not get a tax deduction at the time you make the contribution. But, your money will be growing in the IRA tax-free, and once you turn 59.5, you will be able to begin withdrawing. The best part about it is that you will not even owe a penny in taxes on the money contained within your Roth IRA. The limits on the Roth IRA are the same as they are for the Traditional IRA. In addition, similar to the Traditional IRA, people who are 50 years of age or older have the ability to deposit more money than those younger than them by using the catch-up contribution limits. There is one downside to this IRA account, though, and that is the income limits. This means that not everybody will qualify for the Roth IRA. If you are interested in a Roth IRA, it would be a good idea to check it out with the IRS because the limits change each year.

Precious Metals IRAs

Precious metals IRAs are another type of IRA account, and they can be valued based on metals like gold and silver rather than assets like stocks and bonds. These do work differently and can provide different benefits than the Traditional and Roth IRAs. Here the gold IRA will be explained.

With a gold backed IRA, you will fund your account with gold instead of dollars. There are some specifics when it comes to the gold. For instance, when you buy the gold, it has to be in the form of 24-karat bullion bars. They must additionally have a weight of one to 400 ounces. There are some differences with the account as well. A gold backed IRA is self-directed, meaning you, the account holder, are the main decision maker. In addition, when you have a gold backed IRA, the gold must be maintained in a certain way. Physical gold must be kept in an investment firm which is called a custodial or trustee. Because the custodian keeps and maintains your gold, you will be charged a yearly custodian fee of $100 to $200.

If you choose this type of IRA, you should note that when it comes to investments, what impacts the value of gold is opposite of what impacts the stocks’ value. When the stock value is on the rise, gold value typically goes down. There are some reasons why someone might opt for an IRA backed by gold. For example, gold is a hedge against falling U.S. dollar and stock market value. When uncertainty comes about, people usually turn to gold because it is considered a safe store of value. If stocks are looking bad, people will typically want gold.

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So, if you want to consistently maintain your money’s value and guard it against inflation, a gold backed IRA could be for you. There are some downsides, of course. For instance, there may not be as much potential for growth as there would be with an IRA account that is based on stocks. This is mainly due to the unpredictability of gold. If you want to learn more about gold IRAs or other types, check out Regal Assets.

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