IRAs or Individidual Retirement Accounts refer to a process of saving for retirement from duty or work. Through an IRA, a portion of a person’s salary for example can be directly allocated for his/her retirement fund or the so-called IRA. Different companies and institutions may offer different types of retirement savings processes or strategies but choosing one is considered a good decision. For people who may have some extra money, choosing to have an IRA will most certainly make financial concerns easier to solve after retirement. A person may choose to have the traditional IRA that features tax deductions for contributions while others may choose the newer Roth IRA version wherein no taxes are imposed for IRA savings and earnings when they are withdrawn after at least 5 years. Regardless of the type of IRA, having one has various benefits including the following:
People who contribute part of their salary to the traditional version of the Individual Retirement Account will get to enjoy tax deductions. Up to 4000 US Dollars of total yearly deductions can be availed by people who contribute to Traditional IRA. These deductions simply mean lower tax liabilities for the IRA contributor.
Option for tax-free withdrawals
Some people in the US choose to avail of the Roth IRA version. This type of IRA offers no deductibles for contributions but allows for tax-free withdrawals from the account. Within only 5 years of contributing to this type of IRA, a person may withdraw all of his/her contributions without having to pay any tax for the principal amount. Only the interest earned will be computed for the appropriate tax payments. After 5 years of contributing to the Roth IRA, both the principal contribution amount and the earnings will not be taxed at all.
Protection from creditors
Contributions made to Individual Retirement Accounts cannot be touched by creditors like loaning agents and banks for example. If a person declares bankruptcy, funds that are contributed to his/her IRA are protected by under the law and cannot be taken by creditors. This feature of IRAs is a great benefit for people who have loads of financial problems while they are still working.
Traditional and Roth IRAs can be passed on to declared beneficiaries after the death of the person contributing to this fund. If the contributing and working person dies before his/her actual retirement, the declared beneficiaries like the next of kin or family can withdraw the funds from his/her IRA.
The basic point of having an IRA is to save for retirement. With inflation concerns and possible medical bills during a person’s life after rendering work for a company or institution, having some kind of savings fund is extremely important. Through any type of IRA, various financial worries will be erased and retirement can be fully enjoyed. People in the US simply need to choose the type of IRA that is most beneficial and most applicable to them in order to get the most benefits. The only common restrictions are eligibility and age limits for making contributions.