With so much media focus on retirement planning, you’d assume the United States is a nation of seasoned investors who understand the complexities of a wide range of financial products. However, most Americans are unaware of one of the most efficient vehicles for ensuring their financial futures: the Individual Retirement Account (IRA).
Only 33.4% of Americans’ retirement assets are held in IRAs. This could be partly attributable to a lack of understanding of an IRA and how it can help you achieve your financial goals.
Flexibility in Investments
Opening an IRA account allows clients to access various financial products, including mutual funds, equities, bonds, exchange-traded funds, and real estate investment trusts (REITs). Almost any security that can be owned outside of an IRA can also be owned within one.
This is important because it gives investors the freedom and flexibility they need to reach their short-term or long-term financial goals. Each investor should aim to understand what an IRA is and maximize its benefits.
Educating yourself on the differences between a traditional IRA and a Roth IRA is best. In summary, Roth IRA contributions are made after-tax funds, and qualifying withdrawals are tax-free. On the other hand, contributions to traditional IRAs may be tax-deductible, but withdrawals are taxed as ordinary income. Your AGI and participation in a retirement plan will determine whether a regular IRA is deductible.
Furthermore, your adjusted gross income will determine whether you are eligible to contribute to a Roth IRA. Suppose you do not qualify for a Roth or a traditional deductible IRA. In that case, you can still contribute to a non-deductible traditional IRA. Traditional IRA withdrawals made before age 59½ may be subject to an additional 10% federal tax penalty and state income taxes. Qualified distributions from a Roth IRA are tax-free after five years from the contribution date and after reaching 59½. Earnings made before age 59½ may be subject to a 10% federal tax penalty and state income taxes.
An IRA, whether Roth or regular, has the advantage of being able to hold a wide range of investments. In other words, you can choose investment vehicles that correspond to your objectives and risk tolerance, ranging from long-term and aggressive to short-term and conservative. Certainly, combining mutual funds, equities, and bonds in an IRA can assist achieve the type of diversification that most investors seek.
Inherited IRAs
Making the most of an IRA can also include properly managing an inherited one. Mishandling an inherited IRA is a common and costly mistake. If you are the beneficiary of an IRA, you should get professional guidance before receiving the funds.
Proper titling is essential. If the IRA is appropriately titled, you can get distributions for the rest of your life as a spouse or ten years as a non-spouse beneficiary. For example, suppose a father, John Jones, dies and leaves an IRA to his son, Sam. In that case, a custodian may demand that the account be titled as follows: John Jones, deceased (date of death), IRA for the benefit of Sam Jones. Sam can get distributions for the remainder of his life, provided the account is appropriately titled. This can add significant value to an IRA by giving additional growth potential over many years.
Contact Information:
Email: [email protected]
Phone: 7705402211
Bio:
Mack Hales has spent the past 4 decades helping clients prepare for retirement and manage their finances successfully. He also works with strategies that help clients put away much more money for their retirement than they could in an IRA or even a 401k. We involve the client’s CPA and/or their tax attorney to be sure the programs meet the proper tax codes.
Mack works with Federal Employees to help them establish the right path before and after retirement. The goal is to help the client retire worry-free with as much tax-free income as possible and no worries about money at risk of market loss during retirement.
Mack has resided in Gainesville, GA since 1983, so this is considered home. Mack is married to his wife of 51 years, has two boys and five grandchildren.
