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What Should You Look For In A Retirement IRA?

IRA
June 25th, 2014

We all need to prepare for the future, and financially that means investing in an individual retirement account. Just about everyone can do this. If you are younger than 70 years old and you’re earning an income, then you can squirrel a portion of that income towards your retirement.

The first thing you need to do is to look for a retirement IRA that’s right for your particular financial situation. An accountant or a tax lawyer can help you here, but if you are a DIY type of person then here are some factors you need to consider:

How Much Do You Save in Taxes?

This is a crucial factor, and it all has to do with your current and future tax brackets. Often this consideration comes up when you’re trying to choose between a traditional IRA and a Roth IRA.

With a traditional IRA, you can contribute money even before the government takes its bite in taxes. That means you can contribute $100 in full, instead of after taxes when that $100 becomes only $60. There’s also a second benefit as well; taking the money from your income into a traditional IRA lowers your reported annual income, and that means you can be placed in a lower tax bracket. That can mean even more savings. The tax for this money is deferred, and you pay them when you start withdrawing them from your IRA.

With a Roth IRA, you can only put in money after you’ve paid taxes on it. However, once you withdraw them in the future, they’re tax free. They don’t add to your income when it comes to your taxes.

How Much Will Your Money Grow?

Now that your money is in an IRA, it has to grow. After all, money is subject to inflation. A million dollars would be able to buy more stuff twenty years ago than a million dollars today. When the time comes for you to live on that money when you retire, it should be sufficient for your needs.

You can invest your money in a brokerage, a mutual fund company, or a bank. Each will have minimum amounts you can put in, and you can choose to invest in stocks, bonds or whatever. If you’re not really sure where you want to put your money, you can just put it in a bank IRA account. A bank also doesn’t really have much of a minimum requirement.

How Much Do You Have to Pay?

Now it’s time for you to compare the fees involved. Each company will have a different fee structure for handling your money, so you need to check. There are also penalties when you withdraw your money too early. So if a bank offers lower fees but higher penalties for early withdrawals, you have to evaluate your financial situation and predict the chances of you needing to withdraw a little bit early.

What you have to keep in mind is that an IRA is good thing—it’s so much better than a simple savings account. So you should start putting money in your IRA now while there is still time.


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