An IRA (Individual Retirement Account) is a kind of savings account that allows people to save up for their retirement. Its main advantage are tax deductible deposits, but the real benefit of having an IRA account is the ability to profit on long-term investment opportunities and build up the funds on your account before you reach retirement.
An individual approach is essential to the success of your retirement account. Younger people will be able to take advantage from riskier investments that will ensure them long-term gains. Those who only have a few years left until their retirement will probably prefer to stick to safer options, even though they only offer limited gains.
Traditional IRA is made less flexible by a fixed limit on the amount of money you can deposit every year, as well as a 10% tax on any withdrawals before you reach the age of retirement. There are a few exceptions to this. The withdrawal tax can be waived in case of emergency expenses on medical aide, education or a first-time house purchase. The deposit amount limit also increases after you reach the age of 50 years.
Roth IRA has fewer limitations than its traditional counterpart does. The deposits you make will not be tax deductible, but it’s compensated by no income tax on withdrawals. If money has been held in a Roth IRA for more than 5 years, you can withdraw it without any fees regardless of your current age.
Simplified Employee Pension IRA is a company-managed retirement account fully covered by employers. SEP IRA can be a better option for long-term employees due to lower administration costs, but offers less control. A retirement account which both the employer and employee can use to make deposits is called SIMPLE IRA.
The quality of your retirement will depend or whether you choose the right IRA option for your particular option. To find the right balance between safety and flexibility, do some extra research or consult a financial expert.