IRAs Explained

There are a few types of ways to invest for your retirement- I will go through them in a few blogs to simplify it. Today I will be going over Individual IRAs.

Traditional IRA: This is most basic IRA, if you are younger than 70 1/2 you can contribute to this type of account. You can contribute the same amount as your taxable income up to $5000 per year, this amount increases to $6000 if you are over 50. Biggest advantage of this account is that your contributions are tax-deductible. This does not mean that you don't have to pay taxes on this simply that the tax is deferred until you make withdrawals. Early withdrawals from this type of account usually have a 10% penalty. You have the option to start withdrawing from this account at 59 1/2 but have to withdrawal at 70 1/2.


Roth IRA:  Unlike the traditional IRA the contributions to your Roth IRA are not tax deductible. Why is this a good thing? This is a good thing because this is the only taxes you will have to pay on this amount. You will not pay anything on your earning accumulated over the years!  This has a potential to save you a TON of money! This account also does not have an age requirement where you have to withdrawal from, so many people use this as a way to pass on money to their families. If you do however decide to withdrawal from this account and are younger than 59 1/2 than you will have to pay additional tax plus the 10% penalty (probably not worth it!)

I will note that on both of these accounts you have the flexibility to chose your own investments- stocks, bonds, mutual funds, etc.

Self Directed IRA: This account is more of a non-traditional account. It has the same basic rules of the traditional IRA but it allows you to make more "sophisticated" investments such as mortgages, businesses, precious metals, or real estate.


What would I recommend? It all depends on personal preference. Personally, I have a Roth IRA- you pay the money up front but this can save you lots, and lots of money. Imagine your 20,000 grows into 100,000 which amount would you rather pay taxes on? After getting a lot of scary statements telling me that I was losing my retirement (as I am sure is the case for many of you) I switched to a guaranteed account with ING. This allows my account to grow and no matter what the market does I am guaranteed at least a 6% return of course this can be more if the market goes up.

Hope this helps! Remember- plan for your future today! :)