When it comes to planning for retirement, the investment landscape can get a little confusing. Should you contribute to a 401k? How about a 403b or a 457? Would participating in your company’s stock purchase plan be better? Could you hold out for a pension, or even sell your home and move abroad?
Thankfully, it doesn’t have to be this complicated. Chances are, an IRA can be the perfect investment vehicle for your retirement savings. Here’s why.
1. You Have Total Control of Where Your Money Goes.
Most people contribute to retirement through an employer-sponsored 401k, where they have to choose from a limited number of funds. With an IRA, you can pick exactly where your money goes. If you end up changing your mind about a fund, feel free to allocate that money elsewhere.
2. You Can Contribute an Extra $1,000 a Year if You’re 50 or Older.
People 50 or older can add an extra $1,000 a year to their traditional or Roth IRA, for a total of $6,550 in 2018.
3. Almost Anyone Can Start an IRA.
The only prerequisite to starting an IRA is that you earn more than the amount you contribute. If you want to put $5,000 in your IRA, for example, you have to make at least $5,000 that year.
4. It’s Always Yours.
When you change jobs, you have to roll over your 401k into a new account. Not so with an IRA. Your IRA can stay right where it is, no matter what happens to your job.
5. You Don’t Have to Take Distributions from a Roth IRA.
If your money is invested in a Roth IRA, you’re not required to take distributions from it – even after you reach age 70.5. That means you can let the money sit and grow until you need it, or leave some money behind for future generations.
6. Small Business Owners or Self-Employed People Can Start IRAs.
If you’re a freelancer or run your own small business, you can start a SIMPLE or SEP IRA. Both have a higher contribution limit than a traditional or Roth IRA.
7. You Can Withdraw Money from a Roth IRA Without a Penalty.
Withdrawals from a Roth IRA can be made penalty-free after age 59.5, as long as you’re only pulling out the amount you’ve contributed and not any interest accrued. You can use this for travel, a home renovation project, or debt consolidation.
8. Your Spouse Can Contribute for You.
If you’re already retired, but your spouse is still working, they can contribute to your IRA even though you’re not earning income.
9. You Can Avoid Taxes on Withdrawals.
When you contribute money to a Roth IRA, you can’t take a tax deduction for the amount you put in. However, when you withdraw the funds, you won’t pay taxes on the distributions.
10. Your Heirs Won’t Pay Taxes on Your Roth IRA.
Many people use a Roth IRA as a legacy for their children because they won’t have to pay taxes on the sum.
When it comes to any financial decision, we recommend you speak to a financial advisor.
Zina Kumok is a freelance writer and owner of www.consciouscoins.com.