Even at a young age, every adult should consider their retirement plans. It is important to prepare for the time when you will want to retire or need to retire.
It is important to save or invest properly to ensure there is enough money to support you and allow you to do the things you want to do in your retirement.
There are a variety of options that you can pursue either through your employer or on your own that can assist in ensuring your retirement is secure. One great option for retirement is an IRA.
What is an IRA?
An IRA is an individual retirement account. This is an account that a person can set up on their own to save for retirement. This account is similar to a savings account, but it comes with a lot of tax breaks that can save you thousands over the lifetime of the account.
Unlike a savings account, these funds can be used to purchase stocks and mutual funds to help increase the value of the account. However, there are restrictions and penalties if the money is withdrawn early and limits on how much you can invest each year. Nerdwallet offers some insight into the different types of IRA accounts.
Inheriting an IRA
You may have questions about what is an inherited IRA. An inherited IRA is an IRA that has been passed on to someone else, usually an adult child, after the owner has passed away. These accounts can be quite confusing for those receiving them. However, it is important to seek assistance from a professional to determine best course of action.
There are a lot of intricacies that can make it difficult to know the best steps to take. However, a financial adviser could help you find the best option to minimize tax obligations surrounding these accounts. It is also important to not wait too long in acting as delays in decisions can create costly debts to the IRS.
For example, if the owner of the account had reached 701/2, there is a required minimum distribution, or RMD, they must take out of the account each year or be subjected to a 50% IRS penalty on the amount not withdrawn.
Why do I need to think about an IRA now?
It is never too early to start thinking about retirement. Once you establish a stable job, regular savings or investments should begin to prepare for your retirement. Even in young adulthood, early savings and investing in retirement help to ensure a financially secure retirement.
In addition, with the questions surrounding Social Security benefits and the fact that benefits are often far lower than your income, it is not wise to depend on these benefits for your retirement.
Many employers offer retirement plans, such as 401k or other retirement plans. However, an IRA account allows you to take control of your savings and investments without going through an employer and can be a great resource for those who are self-employed. CNN Money offers a great guide on the different types of IRA accounts and how to get started.
Although it is not necessary to get started on saving for retirement, it is recommended that an advisor be used to help understand all of the details of these types of accounts. They can assist in ensuring you understand the various obligations and requirements for these accounts, as well as their tax obligations. An advisor can also assist in helping you determine the right types of investments for these accounts. This can help you have a financially secure retirement that you can enjoy.
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