Now open for in-person appointments. Click here to book your meeting today

The 5 Basics to IRA’s that you need to know before investing

May 2, 2016

While we’re young, it’s easy to view our financial situation in one basic way – cash only. But as we mature, we start to understand the importance of bank accounts, investments, and retirement funds. There are plenty of different options out there but for many, one of the most important types of retirement accounts is certainly the IRA.

It’s important to understand that while specific IRA’s – short for Individual Retirement Account – will differ in various ways, the basics are usually very similar. The idea is simple – you place funds into a retirement fund while enjoying tax benefits. Then, your money is invested in various stocks, mutual, and other investment options where it matures. Once you reach the appropriate age you can withdraw the money and spend it as you like. Here are a few basic points you need to understand before searching out the best financial advisor.

There are a few other basic points to understand about the IRA:

  • Contributions to traditional IRA’s are pre-tax. When you withdraw them in retirement, they’ll be taxed at your marginal tax rate at that time. Others, like a Roth IRA, will be completely tax free upon reaching the proper age because their contributions are after-tax right from the start.

 

  • With IRAs, you’re able to place almost any kind of investment into the account. This can range from a mutual fund, exchange traded funds, real estate, to stocks to cash to bonds. This helps you diversify your savings in a substantial way.

 

  • There is a limit on annual contributions you can make into an IRA, normally $5,500, but catch-up provisions and type-specific regulations can increase or decrease that amount.

 

  • Anyone who is less than 70-1/2 years of age and has earned income can open a traditional IRA.

 

  • Withdrawing funds prior to age 59-1/2 generally means standard income taxes plus an additional 10 percent penalty on the amount withdrawn. Exceptions to the 10% early withdrawal penalty include medical or educational costs, disability, or to buy a first home.

 

An IRA is a great option for anyone planning ahead for their future. Talking with a qualified financial advisor who knows your situation can help you learn more about whether or not these accounts are right for you. Please contact us @ 540-266-3100 to get specific questions about your IRA’s.