If there’s one lesson that 2020 has taught us, it’s the importance of investing in your future. Imagine trying to retire with only the money that you have in your savings account. It wouldn’t gain much compounding interest and would leave your future in jeopardy.
For that reason, you need to consider opening an IRA. However, there are several things you should consider before you start.
Here are several tips to consider before starting an IRA. Use these to your advantage and find the perfect fit for your situation.
1. Consider the Different Types
Not many people realize (prior to investing in an IRA) that there are two types of IRAs they can choose from.
You can either decide to invest your money into a traditional IRA or a Roth IRA. They both have some similarities, but the differences are what’s going to dictate which is best for you.
Both the traditional and Roth IRAs have the same annual contribution limits of $6,000 each year. If you’re over 50, then that limit is increased an extra $1,000 to help you prepare for upcoming retirement (when you’ll be withdrawing it).
But the main difference is going to be how these two are taxed. The contributions that you make to a traditional IRA are going to be tax-deductible to some extent.
This means that when you go to withdraw it after you retire, you’ll have to pay income taxes on the amount your withdraw.
Meanwhile, Roth IRAs are heavily-used because of the ability to grow them free of taxes. You’ll already have paid the taxes on the money you’ve placed in it and will get to withdraw your assets tax-free after retirement.
For more knowledgeable means of investing, consider an alternative investing platform to broaden your investment portfolio.
2. Use the Retirement Saver’s Credit to Your Advantage
There are many people out there that desperately want to start saving towards their retirement. However, doing so might compromise the quality of life for them and their families, since they don’t make a lot of cash to begin with.
However, the retirement saver’s credit has been put into place to protect those of you who would fall under that category.
The credit is set based on your adjusted gross income that you’ll report to the IRS on your taxes.
That credit can be customized to either 50%, 20%, or 10% of your entire IRA contributions for each year. the credit will match up to $2,000, or $4,000 if you are married and filing jointly.
Using this can help you take back control of your investments. Your annual income no longer dictates the quality of life you’ll have for retirement.
This method of saving can be a lifesaver for those of you that thought you wouldn’t even get to retire one day. There are options out there. Just do the proper research and find a financial advisor to help you through it all.
3. Pick the Right Place to Open Your IRA
You wouldn’t accept a car loan with the first company to make you an offer. You would not just take the first mortgage loan that a bank reached out to you.
You have to use the same mindset when opening an IRA. Choosing the place that you’re going to open and invest in your IRA is just as important as choosing to open the IRA in the first place.
Most credit unions and banks offer an IRA that you can invest in. Rest assured, whichever option that you choose will come with its own respective benefits.
One thing that you might want to consider most is those that give you the option to place your investments into mutual funds. Mutual funds offer a high rate of return but are diverse enough to prevent you from a monumental loss at any one particular point.
Another thing you’ll also want to consider is the fees that it takes to start an IRA with your desired company.
Imagine the horror of planning to initially invest $2,000 in your IRA and finding out that a large percentage of it will be used to pay off that company’s fees.
4. How Much Help Do You Want?
You don’t have to be a genius in the marketplace to invest in an IRA. There are several resources available to you to invest intelligently while going about your daily life.
For example, placing the IRA in the hands of an online broker will help your investments to become diverse. It also gives you control of when to buy and sell your investments over the lifespan of your IRA.
Does that sound like too much work on your end? If so, then there are also automatized ways of investing. These “Robo-advisors” will minimize risk by investing in low-cost funds.
Either way has its benefits and its disadvantages. However, there’s nothing wrong with choosing the automated investing option to start, then taking off the wheel once you’ve learned more about the marketplace.
What’s most important is that you start investing now. Commit yourself to invest in an IRA to reap the benefits in your future.
Starting an IRA: It’s Time to Begin!
There’s never a bad time to think about starting an IRA. Doing so will help you solidify your future.
Be sure to take the time and consider all of your options for investing in an IRA. Do whatever gives you the most confidence.
Also, make sure to browse our website for more articles on investing, as well as many other helpful topics.