Individual Retirement Accounts
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An Individual Retirement Account (IRA) is a tax-advantaged account, designed to help individuals save for retirement. The experts believe that most individuals will need up to 85% of their current income for retirement. Studies show that less than 10% come close to having this amount. In the past, most individuals relied upon a company pension plan, social security and savings to provide their retirement income.
Pension funds are being eliminated or drastically changed. Social security is projected to be in a negative cash flow position by 2017. Basically, this means U.S. citizens need to do a better job at saving their money.
Saving money is probably not enough since traditional savings accounts pay very little interest. IRA’s were created mainly to assist individuals in planning for retirement. Potential earnings are larger than banking and saving accounts. Penalties are imposed to discourage early withdrawal. There are tax advantages, depending upon the type of IRA. Many companies are providing these as an alternative to pension funds. For the most part, it’s quick, easy and inexpensive to open an IRA account. In today’s changing environment, they are an excellent investment vehicle.
In considering an IRA, the first thing you need to determine is what kind of IRA to purchase. There are five different types: Traditional IRA, Education IRA, SEP IRA (Simplified Employee Pension), Simple IRA, and Roth IRA. Each of these meets a specific need. Rules, taxation, and penalties vary by type. Most plans have rollover features. When your employment ends with one company, you can deposit money into an IRA account. You can consult an expert or you can invest on your own. In my next column I will explore and explain the different types of IRA accounts named above.
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- Why Pensions Are Important
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- Can You Count on Social Security for Retirement?
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- IRA Definitions
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- Defined Benefit Pension Plans
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