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Seven Reasons to Utilize an IRA

Filed under: Retirement

Active seniors having fun and running through the autumn forest

With so many retirement savings options out there, it can be hard to know which investment vehicle works for you. Obviously, your best bet is to consult with a skilled, experienced financial advisor. But if you’re researching some options on your own, consider these seven reasons to invest in an Individual Retirement Account (IRA).

You will gain access to a vast number of securities investments. A 401(k) fund offers a menu of investment options, which may or may not suit your preferences. If you find yourself dissatisfied with the options offered through your company’s 401(k), you may be happy with the virtually unlimited amount of options offered through an IRA.

You want to save more. Maybe you’re happy with your 401(k), but you’re already contributing the maximum allowable amounts each year. If you want to save even more for retirement, you can stash $5,500 per year – or $6,500 per year if you’re age 50 or older – in an IRA.

Your company doesn’t offer a 401(k) plan. An IRA is not tied to a specific employer, so it doesn’t matter if your current company doesn’t offer a retirement plan benefit. Plus, if you change employers, you don’t have to worry about leaving behind or cashing out your retirement plan.

You’re self-employed. Self-employed individuals don’t have access to a company 401(k), but they can take advantage of a Solo 401(k) or a Simplified Employee Pension IRA (SEP IRA). In order to reap the tax benefits of these plans, you must open and fund the account before you file your taxes for that year.

An IRA allows you to hold non-traditional investments. If you choose a self-directed IRA, you may be able to put your money into investments such as real estate, precious metals, or private equity. Keep in mind that when you act as your investment fund’s custodian, you are solely responsible for these decisions.

You can take an early withdrawal in some cases. Typically, you can’t withdraw from a retirement account before age 59 ½ without incurring some penalties. But under IRA rules, you may be able to withdraw cash for certain events like a first-time home purchase, health insurance, or college tuition. Generally it is a bad idea to withdraw money from a retirement fund if you can avoid it. But you may appreciate the security of knowing that you would be able to do so.

A Roth IRA offers special tax benefits. It may be wise to choose a Roth IRA if your tax bracket may be higher after you retire. You can place after-tax dollars into the account, and you won’t have to pay taxes on the money with you withdraw it in retirement.