Individual Retirement Accounts, (IRAs) are a worthwhile savings option to consider, regardless of how far away your retirement is. An IRA allows the individual the opportunity to save money for retirement while enjoying some very nice tax benefits. Most young people think, “Well, retirement is such a long way off for me, I don’t have to think about that until much latter. Besides, only old people save for retirement.” This statement couldn’t be farther from the truth! In fact, as long as you are earning income, you don’t even have to be an adult to open an IRA.

Many financial institutions offer IRAs. The two most common types are Traditional and Roth.

With the Traditional IRA you might qualify for tax-deductible contributions. This means that when you file your income taxes each year, you won’t have to pay taxes on the money you deposit into your IRA. In addition, with the Traditional IRA, your earnings as well as contributions will not be subject to income tax until withdrawal. This means that the money in your IRA will not be touched by Uncle Sam until you withdraw it, which is a good thing, because if more money stays in your IRA, more earnings will accumulate from it.

The Roth IRA is different. You invest your money, which has already been taxed, and when the time comes to make withdrawals, your contributions and your earnings remain tax-free.

Many people say the Roth IRA is better than the Traditional, and I would have to agree. Since you’ve already paid taxes on the money you’ve deposited, you won’t have to worry about taxes in the future. And if there are tax increases in the next 30 or 40 years, you won’t have to pay a dime of the difference. Also, with the Roth IRA, the money you gain from your contributions will be tax-free!

What will your future look like after you retire? Will your lifestyle be modest and your budget poor? Or will you enjoy doing new activities and living in comfort? The choice is up to you.

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Tags: contributions, earnings, individual retirement account, ira, IRAs, retirement savings, roth ira, tax-deductible, traditional ira

This entry was posted on Sunday, July 12th, 2009 at 6:03 pm and is filed under IRAs. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.