Humans can do marvelous things because they are creative. Unfortunately, stopping time is not one of them. People will age with time and they will retire at some point in their lives. Currently, more than 46 million Americans are over the age of 65. This figure is likely to rise to 98 million in 2060. Consequently, the US will have more retirees at that point in time than at any other period in the nation’s history.
These retirees people will face many challenges including healthcare issues, income constraints, and in some cases, neglect. You can turn your retirement years into a pleasant experience by investing in IRAs. IRA is an acronym for Individual Retirement Account. An IRA is a savings facility that helps you prepare for your retirement and it comes with several tax advantages. Here are some critical facts on IRAs.
- There Are Two Types Of IRAs
The first thing you ought to know is that there are different kinds of IRAs. More specifically, you can choose between a Roth IRA and a traditional one. These two IRAs come with different advantages and disadvantages. For example, the Roth IRA requires you to pay your taxes now at the prevailing rate. It means that your earnings will grow tax-free. This type of IRA is ideal for anyone who thinks that he will be in a higher tax income bracket in future. In contrast, a traditional IRA means that you will not pay taxes on what you gain until you start receiving contributions. It keeps more money in your IRA account and as such, the amount compounds faster than it does when you take up a Roth IRA. Quest IRA can help you choose the best IRA for you so that you can receive the highest return possible.
- IRAs Have Limits
As mentioned earlier, IRAs have considerable tax benefits. That means many people would love to put all their surplus income into an IRA so that they could receive these benefits. The IRS sets limits on IRAs to deter people from doing that because it would deny the government much-needed revenue. You should know these limits so that you operate within the law. For example, the limits on IRAs in 2017 were $5,500 if you are under the age of 50 and $6,500 if you are over 50 years. Remember, you cannot contribute more than you earn. It is important to note that these limits do not apply when it comes to transfers from other accounts such as a 401(k) rollover.
- IRAs Have Highly Specific Requirements
Traditional and Roth IRAs have unique eligibility requirements. For example, you can deduct your IRA contributions from a traditional account if your earnings fall below certain limits. Additionally, you must have a plan sponsored by your employer such as a 401(k). It is important to note that a Roth IRA is an ideal choice for you if your traditional IRA is nondeductible. You should also note that it is not possible for you to open a Roth IRA account when you are a single person and you earn over $125,000 a year.