When planning for your retirement, there are many different roads to take and steps to remember. However, they all lead you to the same place – a successful retirement. The amount of success you wish to achieve, though, is entirely up to you and how soon you start. Opening up your own Individual Retirement Accounts (IRA) account can seem intimidating and confusing. But take heart! Our team at the Retirement Industry Trust Association (RITA) is here to help. To provide peace of mind and give you a mental checklist of steps you should take before opening one up.
Before You Invest
Save as early, as often, and as much as you can. The more you have to invest early on, the more you’ll receive later on. One day you’ll stop working; during retirement, you’ll want to enjoy life comfortably and freely thanks to the actions of your younger self. Due to the magic of compound interest, the sooner you start saving, the less you have to put away toward your goal of leaving the workforce one day. Even as little as 100 dollars a month could make a world of difference when you start investing in retirement savings early enough.
Experts recommend putting at least 15% of your gross income into retirement savings, but you may need to save more depending on your desired retirement age and lifestyle. Take the time to sit down and create a budget that allows for a monthly IRA contribution.
Put this into perspective: If you were to put in the maximum annual amount of 6,000 dollars into your traditional IRA starting at the age of 25, you would have $1,308,545 by age 65. If you waited until you were 35 to do the same, you would have $633,326 by the age of 65. Use the AARP IRA Calculator to project your potential IRA returns.
Do your research. Get knowledgeable on retirement terms, different accounts, and the benefits of each option. The more time you invest now, the safer your future will be.
Differences Between Traditional IRA and Roth IRA
If an IRA looks like a good option for you, you’ll need to choose between a traditional IRA and a Roth.
Traditional IRA: With a traditional IRA, the money you deposit now is tax-deductible. Earnings accumulate tax-free, but you pay ordinary income tax when you withdraw the money. Choosing a traditional IRA will also depend on your income and whether you have an employer-sponsored retirement plan. Usually, people with a higher income go for this route because it reduces their current taxable income.
Roth IRA: With a Roth, you cannot deduct money that you deposit from your taxes now. Earnings accumulate tax-free, and you withdraw the money tax-free in retirement. This option benefits people who recently started their careers and currently have a lower income tax bracket.
With a Roth IRA, you can also withdraw the money you saved in it without a penalty. However, you cannot withdraw any earnings without a penalty until you retire.
For a deeper dive into the differences between the two, check our IRA 101 page and the chart below.
Either way, you are not restricted to only one account. You can choose to go with a different kind of IRA later on in life if you please.
Find an IRA Custodian
Getting the correct guidance and support when planning your future is critical. It doesn’t hurt to reach out for help on someone taught on the subject and has years of experience. If you are interested in self-directed IRA (SDIRA) investments, it is wise to choose an IRA custodian who is knowledgeable and determined to bring you the best plan and outcome. Once you find your SDIRA custodian, you’ll need to complete the necessary documents and have money to make an initial deposit in the IRA account.
When you select a self-directed IRA custodian through RitaUS.org, you can get assistance with all of your self-directed retirement needs. RITA’s members provide alternative asset administration for a wide variety of IRS-allowable alternative assets. You will get the how and why behind every step you are advised to make.
Your Future Self Will Thank You
It is never too early to start investing in your future. Becoming knowledgeable about IRAs and what they can do for you is only the first step but probably the most critical step. Take advantage of your resources and take active steps toward a peaceful retirement. Learn as you go and start saving! The money you save for retirement is money that buys freedom to do whatever you want. What are you waiting for?
For more information and guidance about “all things IRA,” visit us at RitaUS.org for all the tools and resources you’ll need.