I’m sure you’ve received the typical retirement spiel at some point during your life, encouraging you to start planning NOW.
But it’s true!
If you didn’t get the memo, social security alone isn’t enough to live off of during retirement and even if you do have adequate savings, many people outlive their assets or are faced with unexpected healthcare expenses.
The thing is, these complications can be easily avoided if you know how to construct the proper retirement account.
If you’re unsure about the future of your retirement, DON’T WORRY.
I’m here to break things down a bit so you can be sure you’re getting the tax free retirement account you deserve.
Let’s start with the basics.
For the majority of people, retirement can be boiled down to Individual Retirement Accounts or IRAs for short.
These accounts are similar to many other retirement funds; however, IRAs set themselves apart from the rest because they allow you to make tax free contributions.
There simply isn’t a universal IRA that caters to everyone, but you can narrow things down to two different options, Traditional and Roth.
First, let’s take a look at the similarities to understand the differences.
If you’re under the age of fifty, both Traditional and Roth IRAs allow annual contributions of $5,500, but if you’re older then you can tack on an additional $1,000 per year.
Remember, this money is TAX FREE… although, like many things that seem too good to be true, there’s a catch.
The money you contribute to these accounts will remain tax free and can be withdrawn at no cost once you’re nearing sixty-years-old, BUT if you choose to take the money out anytime beforehand then a penalty applies as well as taxation.
So which one works best for you?
Almost anyone who earns a taxable income and is under the age of seventy-one can open or invest in a Traditional IRA.
These accounts remain untaxed until you make a withdrawal but they have RMDs or required minimum distributions.
Without getting bogged down with all of the details, just understand that RMDs are a fancy term for making a withdrawal from the account.
Like the name says, these distributions are required and you’ll be fined if you fail to take the minimum amount.
In short, Traditional IRAs are a good option if you’re eligible and prefer to take on your tax deductions NOW.
Maybe a Traditional IRA is not your cup of tea and if so, no worries.
Roth IRAs are still another alternative.
Unlike Traditional IRAs, Roth IRAs have no age restrictions. Instead, they implement annual income requirements. If you’re married, this joint price is marked at $189,000 and if you’re not then it’s set to $120,000 per individual.
If you meet either of these salary requirements, you can join the club!
If you’re sixty and your Roth IRA has been active for five years or more then your earnings are TAX FREE. On top of that, Roth IRAs have no RMDs so withdraws can be made at any time, once again, free of tax.
Overall, a Roth IRA is a good option if you think your tax bracket will be higher in the future.
Studies show that only 18% of American workers feel confident about their retirement savings.
Are you someone who does not fall into this statistic?
If so, you’re definitely not alone.
At the same time, there’s no point getting dragged down with the 82% of people who aren’t prepared for life after their careers have ended.
Weigh out your options, determine which IRA works best for you and make the decision to start contributing to your retirement account TODAY.