What is an IRA?
- What is an IRA?
- Why You Should Have an IRA?
- IRA Advantages You NEED to Know to Create Future Wealth and Save for Retirement
What is an IRA?
Individual Retirement Accounts were created in 1974 with the passage of the Employee Retirement Income Security Act (ERISA) as an investment vehicle to grow retirement savings.
Why You Should Have an IRA?
Did you know that the Social Security Administration’s most recent trustee report states that Social Security will begin to run a negative cash flow by the year 2017 and by the year 2040 will not be able to pay full benefits?
With the impending Social Security crisis and dramatic reduction in pensions, it is imperative to begin planning for your financial future today.
IRA Advantages You NEED to Know to Create Future Wealth and Save for Retirement
Social security might not be enough to secure your financial future. That’s why the government created the IRA—to help you save for your future. An IRA investment grows in a tax-free and tax-deferred environment that compounds over time—maximizing the ability to grow wealth.
IRA Advantage #1: Compound Interest + Tax-deferred Profits
“Compound interest is the most powerful force on Earth.”
Here’s why. Compound interest occurs when you not only earn interest on your original investment sum, but also on the interest earned on the original sum.
For example, beginning at age 25, you take the $4 you spend each day for coffee and put it towards retirement. At that rate, you’d save $121 month. If you received 9% in compounding interest each year, you would have $23,415 after 10 years. After 20 years, you’d receive $221,520 and after 30 years, when you are 65, you’d have an amazing $566,440.
The power of compound interest is multiplied in tax-advantage accounts, such as IRAs.
For example, if you were to contribute $4,000 a year to a tax-advantaged account (an IRA) and assume an 8% compound interest rate of return for 30 years, your self directed IRA would be worth $449,133 at the end of year 30.
If you made the same investment in a non-tax sheltered environment (a brokerage account), assuming a 31% tax rate, it would be worth $286,752 instead of $449,133.
That is 43% less, a difference of $162,381. As you can see the effect of taxes on your savings can be dramatic. See the benefits for yourself with the Compound Interest Calculator.
IRA Advantage #2: Large Tax Deductions (possibly more than $50,000!)
Certain IRAs allow you to reduce your taxable income today while saving for your future. For example, if you contributed $5,000 to a Traditional IRA this year, and if you meet qualified income levels, you are eligible for a $5,000 tax deduction when filing your return. Depending on the plan type, you could be eligible for a tax deduction of more than $50,000.
IRA Advantage #3: Hard-Earned Assets Are Protected from Creditors
IRAs are afforded protection under federal bankruptcy law and thus generally are shielded from creditors in bankruptcy proceedings. For more information read Can Someone Sue You for Your Retirement Accounts?
IRA Advantage #4: Create Wealth for Your Future Generations
Certain IRAs allow the passing of assets to beneficiaries after death while avoiding taxes. Benefit your family’s financial future with estate planning that leaves valuable IRA assets to loved ones without the burden of taxes.
There are different types of IRAs and government-sponsored small business retirement plans, and each possesses unique tax advantages to maximize your future wealth. Determine the right plan for you, start saving today and enjoy the benefits in retirement.