Navigating the world of IRAs, or Individual Retirement Arrangements, can be confusing without some help to understand the nature and basic guidelines surrounding the set up and use of an IRA. To prepare for retirement by contributing to an IRA necessitates some familiarity with the world of investment and taxes. An IRA is an account that facilitates saving for retirement and taking advantage of tax benefits. The maximum IRA contributions and regulations depend on where you are financially and can vary from year to year. To set up an IRA, you can use the services of a bank or credit union, a life insurance company, a mutual fund advisor or stockbroker. The funds stored in your IRA are held until you retire and have various regulations regarding when and how you can make withdrawals from your account. Though the Internal Revenue Service regulates the arrangements of your IRA, it cannot provide investment advice, so finding a trustworthy financial advisor or custodian such as Regal Assets can help you make the most out of your retirement plans.
Getting Started With an IRA
Before you start an IRA, you need to consider whether to set up a traditional IRA or a Roth IRA. In a traditional IRA, your contributions to the account may be tax-deductable whereas contributions to a Roth IRA are not tax-deductable. The advantage of setting up a Roth IRA is that the contributions you make are able to grow tax-free and usually you are able to withdraw money after age 59 and a half without tax or penalty. Simply put, a Traditional IRA contains contributions made from your pre-tax income and are tax deductable so you will end up paying taxes on withdrawals from the account as if funds were current income whereas in a Roth IRA, the money contributed is after-tax dollars, so no further taxes are required on the money or its earned interest. Anyone with an earned income can contribute at a minimum or maximum IRA contribution to a Traditional IRA, but those with an earned income above a certain level are not eligible for a Roth IRA. Additionally, there are no age limits on a Roth IRA. If you have a Roth IRA, you can contribute to it at any age, but with a Traditional IRA, you cannot contribute any more to the account after age 70 and a half.
To understand how much can be contributed to your IRA, you need to know the limits which are based on income. Those within the smallest income bracket can make a maximum IRA contribution of $5,500 or up to $6,500 if over age 50. For those with a higher income, the maximum contribution to a Roth IRA is smaller as the income goes higher. The types of investment that are allowable in your IRA include gold and precious metals, so you will want to investigate all of your options to secure a stable future for your retirement account.
To make a contribution to your IRA, you need to keep in mind that there is an IRA contribution deadline. This deadline is typically the same as the date for filing taxes, April 15. The earlier in the fiscal year that you make your contribution to your IRA the sooner your funds can start to gain interest and potential gains. To make sure you are saving effectively, it is wise to invest your tax-advantaged contribution sooner in the year rather than later in the year. It can be helpful to set up automatic investments to be sure that you are consistently working towards the maximum IRA contribution for the year.
Withdrawals and Distributions From Your IRA
You also need to know how to make withdrawals and distributions from your IRA. If you are under age 59, to withdrawal funds from your Traditional IRA, you will be required to pay a 10 percent penalty and taxes on the amount as though it were current income. There are exceptions to this requirement, however, and the penalty may be waived for the purposes of higher education expenses, first-time home purchases up to a certain amount, and unreimbursed medical expenses. With a Roth IRA, you never have to take assets from your account if you don’t need them whereas with a traditional IRA, you will be required to take distributions from your account after age 70 and a half.
If you are between the ages of 60 and 70, you will not face a withdrawal penalty when you take money from your Traditional IRA, but your withdrawals will be taxed as ordinary income. At age 70 and a half, you will face mandatory withdrawal without penalty, but taxes will apply. Your required minimum distribution, or RMD, can be taken as a lump sum, or in a series of withdrawals or even in a scheduled, automatic withdrawal.
IRAs have the advantage of naming a beneficiary should you pass away before using the IRA funds. If a person inherits a Traditional IRA from a spouse, that person can choose to treat the account as their own, rollover the funds to a qualified employer plan or other account, or act as a beneficiary instead of treating the IRA as his or her own IRA. Benefits from an IRA paid to a survivor must be treated as gross income, but the distributions can be delayed until the deceased person would have been 70 and a half or the person can treat the account as her or his own.
Save For Your Future By Contributing to an IRA
Since everyone, even those who have a retirement plan at work, can set up and use a traditional IRA, it makes sense to get an account started as soon as possible. The maximum IRA contributions are about the same for both Traditional and Roth IRAs, though they function differently with regards to taxes and withdrawals. At Regal Assets, the experts can help you rollover your current IRA into a gold IRA with secure, stable assets of real, physical precious metals allowable by the IRS to be held in your behalf for retirement. Find out more about converting your IRA contributions into a gold IRA by contacting Regal Assets today.