One of the most powerful life
events, from both a financial and personal perspective, most people will ever
experience is retirement. Realizing a secure and fulfilling retirement
can be an incredibly expensive process that takes plenty of careful planning
and years of persistence. And once retirement is reached, managing it
properly is an ongoing responsibility that continues into one’s golden years.
While everyone would like to
retire comfortably, the time and complexity required to build a successful
retirement plan can seem daunting. However, planning for retirement
doesn’t have to be a headache – it just takes a little homework, an investment
plan, attainable savings and a long-term commitment.
There are several retirement
options available today, ranging from government and profit-sharing plans to 401(k) and IRA plans. It simply boils down to what makes it more suitable
for the individual – and, in some cases, people may have more than one
retirement plan in progress. Many mistakenly believe that a 401(k) plan
is the only option when it comes to retiring, but an IRA is another excellent
choice for most people.
The IRA
Most financial experts estimate
that people will need about 85% of their pre-retirement income during the
retirement period. Many employer-sponsored and government-based plans
might not be enough to accumulate the savings needed. The tax benefits
associated with opening an IRA are appealing to most individuals who are
thinking about enjoying a comfortable retirement.
An IRA, which stands for an
individual retirement account, permits one to save money for retirement in a
way that has a number of tax benefits. This means that the account allows
one to save money either with tax-free growth or on a tax-deferred basis.
The two main types of IRAs are Traditional and Roth.
With a Traditional IRA,
individuals make contributions with money that may be deducted on the annual
tax return, and earnings can grow tax-deferred until withdrawal during
retirement. Traditional IRA is beneficial for many retirees who often
find themselves in a lower tax bracket than while they were working so they
will pay less in tax later in life. The main advantage is that investors
can see the advantages on their current tax return, but they will be required
to pay taxes upon withdrawals later on down the road.
If someone chooses a Roth IRA, he
or she makes contributions with money that he or she has already paid taxes on,
so contributions cannot be deducted from taxes each year and the money can grow
practically tax-free. During retirement, money can be withdrawn tax-free,
as long as certain conditions are met. The main appeal of a Roth IRA is
that no taxes are required upon withdrawal, but the benefits of tax deductions
during working years is not available - read more on why converting to a Roth IRA may be
right for you.
Choosing a retirement plan is a crucial
decision, and the sooner the decision is made, the better. However, it is
never too late to start saving for retirement, therefore, make a start today.
Author: Aimee
No comments:
Post a Comment