Building Wealth through an IRA
March 12, 2010 by Aaron Smith | Category: Budgeting
An IRA is a retirement plan that has huge tax advantages and allows an individual to build up their savings for the future. How can an IRA be defined? Essentially the best way to describe an IRA is that it is a mixture between a savings account and an investment account, but with far more perks than either of them. IRA is short for Individual Retirement Account and the accounts were set up in 1974. Since that time a lot of Americans have successfully built their wealth by using this account, but at the same time many more have missed out on a great opportunity. How can you take advantage of the benefits of an IRA and build wealth for your future?
Getting an Edge Early On
There are several ways to get an edge and build wealth efficiently through an IRA account, but none of them are more important than getting started early on in life. The truth is while less than 20% of Americans will have an IRA account by the time they are 25, the best time to get involved is when you are young. If you begin investing in an IRA when you are young you will take greater advantage of compounding returns in this account. The tax benefits are enormous in an IRA and a wise consumer will consult a professional or do their due diligence on all the benefits of the IRA as it pertains to personal taxes. Things such as IRA fees and losses are generally tax deductible. In a Roth IRA there are tax-free withdrawals after the age of 59 and ½, which is a huge plus. In the Traditional IRA contributions are tax-deductible, but withdrawals are taxed as income.
Easy and Flexible
Individual Retirement Accounts offer a great amount of flexibility when it comes to asset choices inside your account. Mutual funds, stocks, certificates of deposit, bonds, and many other asset classes are often used inside an IRA. Another benefit of an IRA account is the ability to make adjustments to your asset allocation without penalty. If you are looking to get started with an IRA the good news is the minimum deposit amount is typically very low. Many mutual fund companies or banks offer IRA accounts to those who can only afford to open their account with as little as $250 or $500. While this amount may seem miniscule at first if you open this account and save a modest portion of your paycheck to add to your IRA you will be shocked how quickly this will add up over time.
Take Advantage of This Constantly Growing Opportunity
As the years go by the IRA contribution limits continue to grow, which means there is even more of an opportunity for individuals to take advantage of the best way to create wealth through investing and savings. In 2010 the maximum contribution level is now $5,000 if you are less than 50 and $6,000 if you are 50 or older. An interesting, but disturbing statistic is that only 10% of eligible taxpayers pay into their IRA each year. While it may seem difficult to save this money, I would strongly advise you to do so. In the long run you will find that the truth is you cannot afford to miss this opportunity. Take advantage of this great builder of wealth if you are serious about your financial future!
