Advantages and Benefits of Having an IRA

If you are like most of us you can't retire from the interest accumulating in your savings account. Since inflation grows at a average rate of 3% a year you need to make your money grow faster than that in order for it to have the same or more purchasing power. Savings and checking accounts aren't going to do the job. You need something better. This is where a IRA ( individual retirement account ) comes in. An IRA is a tax sheltered account geared toward helping you retire. The tax advantages of an IRA can and will save you tons of money in the long run, in-turn making you money.

Reasons Why You Need an IRA

1. How else will you retire if you don't have a retirement account? Social Security? Your company's traditional pension plan? Probably not and if could manage to squeeze it out you wouldn't be living comfortably or how you are accustomed to.

2. Tax advantages are the biggest benefit of an IRA. Not only do you save money on the amount you put in the IRA, your money grows tax deferred. With an IRA you don't have to pay taxes on the parts of your income that you choose to be put in your IRA. Lets say that you are in a high tax bracket, if you get a paycheck for $2,000 after taxes you actually only have $1,350 in your pocket. Now lets say that you choose to have that paycheck deposited into your retirement account, then you would get to keep all $2,000 and let it grow tax-deferred.

3. If you don't save money in a IRA you are likely to spend it. The money you save in your checking and savings accounts is so easily accessible. You can just use your credit or debit card or go in the gas station and use your ATM. That makes you much more likely to spend it instead of save it. To make matters worse you will probably spend it on something you don't need.

4. Most financial aid formulas ignore your retirement savings as assets. This in-turn means that your children get more money for college and it is easier to afford.

5. Once you put money into a IRA you are unlikely to take it. Due to 10% early withdrawal penalty tagged along with taxes you are unlikely to take your money out.

6. I'm sure by now a lot of you are asking the question why would i open a IRA when i can put my money in my 401(K). The answer is IRAs are much more flexible than 401(K)'s. The majority of 401(K) owners can only choose from a few lousy mutual funds. They cannot choose individual stocks and bonds. They have little freedom over their investments. The only upside to owning a 401(K) over an IRA is that in some cases the employer matches the employees contribution.

- contributions are tax deductile

- withdrawals can be made after age 59 1/2 without penalty

- early withdrawals are subject to a 10% penalty plus state and federal taxes

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