What Is An IRA And How Will It Help Me Retire?

What is an IRA? Quite simply, IRA is short for Individual Retirement Account and can provide a good, long-term investment tax shelter for investors who can’t afford a fancy CPA. An IRA is designed to hold long term investments for an individual account holder. The traditional IRA is funded with pre-tax dollars, which is an important distinction from its cousin, the Roth IRA, which instead is funded with after-tax dollars; however, there is usually no tax whatsoever on withdraws from Roth IRA’s.

What is a Roth IRA? Again, simple. It is like a traditional IRA except that it holds a tax-free status. This means that one can invest money in a Roth IRA and it can grow, tax-free, up to the point of withdraw at 59 1/2 years of age. An IRA, regardless of its type, is a superior long-term investment vehicle that can be used for creating a safe and secure retirement ahead for its owner. IRAs have long since been a favorite of investment and retirement planners because of their flexibility and versatility.

Albert Einstein once described compound interest as the eighth wonder of the modern world because of its amazing properties. It is possible to take an investment of just $5,000 growing at about 10% per year and left alone for 40 years at that rate (with earnings reinvestment) your principal will have grown to over a million dollars. This is the beauty of compound-interest. IRA’s are designed to help accomplish this very aim.

What Is An IRA Best For?

Long-term investments are the most suitable for the traditional IRA and the Roth IRA alike. One of the best features of the IRA account is that it may hold various kinds of securities and other investments. Real estate, for example, may be held with an IRA account, as well as many other annuities and securities. IRAs are flexible with their ability to hold a multitude of investment options. Stocks also may be held in the very same account as real estate. This is quite unique in the investment world and this versatility makes IRAs one of the most popular investment tools available.

What Is A Roth IRA Best For?

Similar to the traditional IRA, the Roth IRA may hold any of the different types of securities or real estate, as well as some other investments. The only difference with the Roth is how it grows in a tax-free manner. Withdraws can be made any time with no tax penalty. This is a huge advantage to the IRA, and should not be overlooked. Because taxes can be so costly, and compound interest works best with the earnings reinvested continuously, the IRA will achieve a much higher end yield because taxes were not taken out each year compared to other securities investment vehicles. This does not mean that taxes will not be assessed, just that the investments won’t be taxed until the very end when they are withdrawn.

IRAs are one of the most useful investment vehicles of our modern time. They can help an individual reach their retirement goals. Well-planned, they can make the difference between a shaky retirement account and one filled with hope for a secure future. Financial planners advocate the use of the IRAs for tax-free investment returns and long-term appreciation. IRA accounts will fit together well with 401k retirement accounts provided by employers. These different investment vehicles will provide a good solution to long-term investment aims with each of the IRAs working together for very nice tax-free growth.