Do you feel confused with all of the financial instruments to choose from when investing for your retirement? I would like to share some facts on choosing IRA investments as part of your retirement.
HOW MUCH WILL YOU KEEP FOR RETIREMENT?
THING’S TO KNOW ABOUT IRA’S
Choosing IRA investments and the myriad ways to minimize taxes within these accounts will go a long way in determining how prepared you are for retirement. According to the Investment Company Institute $4.7 trillion was held in individual retirement accounts in 2010, which accounts for approximately 25% of all retirement assets in the U.S. That number continues to rise as more and more move their funds to a Roth IRA. This is not a promotion for Roth; however, it is time you take your retirement plans into your own hands. Of course, you should seek the guidance of a certified financial planner or IRA specialist to discuss and create your plan. In the meantime, let’s get the ball rolling and prepare you for your visit. Remember, diversification and flexibility is key, in your portfolio, to long term success. It could very well determine if you are on the beach, travelling abroad or spending your twilight years as a greeter at Wal Mart.
The following will provide you with general knowledge, merely scratching the surface of the intricacies involved.
Traditional IRA’s allow you to defer paying taxes on up to $5k of savings if you are younger than 50 or $6k for 50 and older. Upon withdrawal regular income tax is due on savings and interest vs. Roth IRA’s which are made with after tax dollars and withdrawals in retirement from accounts at least 5yrs old including the earnings are tax free.
Older age for retirement withdrawals: Workers who leave their job at 55 or later can take penalty free 401(K) withdrawals. If you roll that money into an IRA you will have to wait till 59 ½ to avoid penalty; however there are a few items you may withdraw funds for and not be penalized the 10% tax. 1) non-reimbursed medical expenses that equal more than 7.5 % of your adjusted gross income.2) pay for health insurance after losing your job...3) Pay for higher education expenses..4) You may use up to $10k for a first home purchase (your spouse could do it as well)
As an IRA owner you are now responsible for selecting (can you say real estate) and shifting your investments.
No dollar amount limits for converting a traditional IRA to a Roth, however, retirement savers must pay income tax on the converted amount. Your future withdrawals will be tax free though, as you are basically paying up front removing the uncertainty of what future taxes will do to your savings.
Withdrawals are required within a traditional IRA. Distributions are required after age 70 ½. Should you fail to withdraw the correct amount you must pay a 50% EXCISE tax on the amount not distributed as required.
Costs vary and matter. Sometimes IRA savers pay higher fees than 401(K) holders mainly because they do not have the “group” bargaining power to obtain lower cost investment products. Bottom line here is to pay attention to costs and fees and switch into low cost investments whenever possible.
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