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Maggie | Should my husband and I get IRA's? |
My husband and I are both in our twenties and we have one child. Neither of our employers has a 401-K plan; we are considering getting an IRA. Could anyone explain to me the benefits of an IRA, how IRA's work, and whether we should get an IRA or try another form of retirement savings? I would really appreciate any help, thank you. |
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mamamoon
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You should ABSOLUTELY get a ROTH IRA. Do NOT get a Traditional IRA - it will cost you too much in taxes in the future. Also, do NOT get an Annuity - not the proper investment for you - most advisors will want to put you in it since the commission is the highest. I would be glad to correspond if you want - dtrisker@yahoo.com. I am using my wife's account for this reply - but this is what I do - contact me & we can chat.
-Dan |
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joyagooden
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You should definitely get into some sort of investment for your retirement and an IRA is a good way to gain additional tax benefits.
If your employer doesn't offer a 401K, then and IRA is the next best thing, unless you are self employed. Then you can start a self employment retirement plan (also with tax benefits.)
If you open a conventional IRA you deduct the money from your income and don't pay tax on it now. When you take the money out (at retirement age) you are taxed on it, but assuming that you will be in a lower tax bracket.
With a Roth IRA, you pay tax on the money now, but when you take it out at retirement age, you are not taxed on it.
If you decide to take money out of either one before retirement age, you not only pay taxes, but penalties. So, this is something that you will just have to keep in the account - not an "emergency savings" account.
You should probably talk to a regular (licensed) financial planner about how you can maximize your investment, BTW. |
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Griffin
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To be clear (not condescending), an IRA is an account registration, not an investment. The types of investments you can have in this registration are nearly limitless (stock, bonds, mutual funds, bank savings account) You can elect to have either a Traditional or ROTH IRA. The traditional offers you the ability to have a current year tax deduction; whereas the ROTH isn't tax deductible, but all contributions and earnings are tax exempt when withdrawn at retirement.
The ROTH also offers the flexibility of providing you the opportunity to withdraw contributions (not earnings) before retirement age without penalty. This flexibility my be interesting to you if you are considering buying a home in a number of years. Additionally, it is generally considered more tax advantageous for younger investors, like you, to opt for the ROTH.
If you want to know about some investment recommendations, then add it in some additional details. I won't give you names of investments, just general directions (you should make that choice). Otherwise, what sahara wrote was pretty accurate.
Vegetarian by marriage! I survived. |
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Feeling Mutual
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Yes, IRAs (Individual Retirement Arrangements) are fantastic.
If you need a tax deduction now, get Traditional IRAs, all the contributions are tax deferred, it lowers your Adjusted gross income and puts you in a lower tax bracket.
If you do not need a tax deduction now, get Roth IRAs. The gains are all tax free after you retire. Sweet!
I use Scottrade for my IRAs, because I can invest in mutual funds, and stocks, and bonds.
If you buy mutual funds, Scottrade has many no-load, no transaction fee mutual funds. Never buy a mutual fund that has a load or transaction fee.
You can also get both, but follow the IRS rules.
You can get more info from IRS Publication 590 (2006), Individual Retirement Arrangements (IRAs)
http://www.irs.gov/pub/irs-pdf/p590.pdf |
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Sahara
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IRA stands for Individual Retirement Account. You should open a Roth IRA since you are young. You get a tax deduction if you invest in an IRA. You don't get one with a Roth IRA, however when you withdraw from the roth ira, you will not owe anymore taxes so the money grows tax-free. You should sit down an investment advisor who can provide you more assistance. Be sure to ask lots of questions, especially about anything you don't understand. Don't go for any insurance based products. They are not appropriate for most investors. They are only appropriate for people that have excess money. Ask about fees. Ask about rates of return. Avoid anyone who promises a guaranteed rate of return. Legally, they cannot do that. If they do then you know they are dishonest and not to be trusted. All they can show is the history of the funds. How do you feel about risk? If you are new to investing then I would stick with a balanced fund because it is a conservative fund but you will still have some growth. This is what is recommended to people who are starting out. Once you understand more about the market and the different types of investment choices available, you may feel more comfortable trading increased risk for increased return. Think long-term. Warren Buffett is the greatest investor alive (ever) so pay attention to his recommendations. |
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kdog
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yes, When you put money in an IRA you actually invest in a lot of companies at one time. That way you don't have all your eggs in one basket so to speak. You can invest in small, medium, and large markets, bonds, or international markets. There are others, but you get the idea. The value of your IRA will fluctuate, but over say 30 years the general trend will be an overall increase. They are great long term investments especially since you are in your 20's. Mine has gone down a little over time, but overall it has gone up. And you should never stop adding to it. Every month, put what ever you can afford into your IRA. Even if it is only $50 a month, invest when ever you can.
Also be sure to get a ROTH IRA. In this case you put your money in after you've paid taxes on your income. Then you don't pay any taxes on the interest you've earned when you cash the IRA out when you retire. It is fairly new and a great deal. |
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james b
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At that age i would recommend a Roth IRA vs a traditional. The difference is that a traditional IRA is Tax differed and you can write of the contributions on your taxes the year you put the funds in. A Roth IRA you use after tax money and you do not pay tax on the money when you retire. This means you do not pay addition tax on the gains.
Example today you have $10,000 you want to deposit and your current tax bracket is 30%
In a traditional IRA you deposit $10,000 and you get back $3,000 on your taxes (you now have $13,000)
In a Roth IRA you deposit $10,000 and get nothing back on your taxes
No lets say you are 25 and retiering at 65 thats 40 years!!
WITHOUT componding interest if you made 5% interest for 40 years on $10,000 that is an additional $20,000 so you would have $30,000 even if your tax braket was cut in half to 15% you would be paying $4,500 in taxes vs what you would pay now. Note if you compond interest this number is uch higher.
But you should always contribte to an IRA if you plan on ever retiering. |
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heyteach
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Hopefully you can swing more than an IRA for retirement--the government will outspend the small contribution you can make.
Traditional IRAs allow you to subtract that amount deposited from your income, so it could keep you in a lower tax bracket (no idea what you all make). In 2010 you will be able to transition traditional IRAs to Roth IRAs, but that means you'll have tax issues during the rollover. A traditional IRA will be taxable when you start withdrawing from it.
The Roth IRA is after-tax funds, so it's not taxable when you start to withdraw it per the rules. In fact, after that initial tax hit, it's tax exempt if you've got the money in for at least 5 and a half years and are 59.5 or older when you start taking money out.
There are quite a few ins and outs. Here's an article that's easy to read:
http://www.fool.com/money/allaboutiras/allaboutiras03.htm
The reason the IRA is probably THE best retirement account is that unlike a 401(k) with its limited menu of investment options, with an IRA (Roth or traditional) you can invest in stocks, bonds, buy real estate, invest in a business. You have real options. Most people are NOT aware of just how flexible the IRA is. As people will not believe this, you can read the FACTS yourself:
http://www.taxesq.com/taxinfo/IRAInvestments.html
http://www.realtor.org/rmomag.NSF/pages/featuresept03ira
IF you are going to take investment advice from someone, I'd make sure he realizes just what you CAN do with an IRA, otherwise you could get stuck with a CD which will MAYBE keep pace with inflation. Whoopee. (Remember the REAL definition of inflation is not "rising prices." It is a monetary phenomenon where there is more money supply than output and then prices rise from that fact. Oh and that definition is Milton Friedman's, so you can take it to the bank. As everything is "fiat currency" instead of backed by gold or something of agreed upon intrinsic value, currency values can be all over the board and that's another concern when investing, especially long-term.)
I'd not worry about the "educational credentials" of an adviser, I'd worry about his RESULTS and what he KNOWS. If he just says one is after-tax money and the other before-tax money and get a CD going, I'd get someone who knows more so YOUR money works FOR YOU. Also no reason you and your husband can't educate yourself on these things. With a little patience and some real knowledge, you can grow that IRA impressively. BUT just as you should NEVER let someone "sign your checks for you" (in other words, give control to someone else of YOUR money), you should understand EVERY investment decision you make.
Some good books to check out:
All Your Worth by Elizabeth Warren
Your Money Rules for Financial Freedom by Michael J Laurence
The Nine Steps to Financial Freedom by Suze Orman
The Road to Wealth by Suze Orman
Good luck. |
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Bob D
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Get the IRA. Save money for retirement and get tax benefits by lowering your taxable income. Go to your credit union or bank and they can give you more info. Do it, it will save you money now and make you feel finacially more stable in the futuer. |
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bud68
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Read up on IRAs at www.ira.com, www.investopedia.com, aol.money.com among other places. |
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catumi
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I don't know a lot about them, but I have a Simple IRA that has really grown!! Go to www.ira.com I think they are totally worth it!! |
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Alex J
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sure y not |
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scottythecomic
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With the economy the way it is headed I'd wait. If the economy collapses due to the weakening dollar and inflation, you will need your cash. An IRA will prohibit this.
Other than that, an IRA is good. |
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Cory G
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get a 401-k my parents have one it is great |
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