3 Reasons to Contribute to an IRA

Investing money in a retirement account now can give you financial security and peace of mind for the future. There are several ways available to save for retirement.

Here are some of the ways an individual retirement account (IRA) offers benefits.

You Can Save for Retirement, Whether Your Employer Offers a Plan or Not

If your company doesn’t offer a retirement account, you don’t qualify for some reason, or you’re self-employed, you can still set up an IRA on your own and invest in your future. If your employer does offer a retirement plan, such as a 401(k), you may want to contribute to that, plus set-up an IRA, this will allow you to save for retirement at a faster rate. This is a key strategy that many use if they started investing late or have a significant amount of income left over after paying bills and would like to put a higher percentage toward retirement savings.

Your Money Can Grow Thanks to Compounded Interest

One of the greatest things about putting your money into an IRA is that your contributions earn interest. That interest is then added to the amount you invested, and the total sum is reinvested. That sum then earns interest and is reinvested, and the process repeats over and over. That process is known as compounding.

The longer money is invested, the more you can benefit from compounded interest.

It’s a good idea to start your retirement savings now. Even small amounts contributed today – compounding for many years – will likely mean a larger account balance in retirement when compared to larger contributions made late in life.

You Can Decide When to Pay Taxes

You can set-up a Traditional and/or a Roth IRA.

With a traditional IRA, your contributions are made pre-tax, you don’t pay taxes on those funds until withdrawn from your IRA later on. This means compounding interest on tax dollars that would have otherwise gone to the government. Sounds good, right? One thing to take into consideration is your expected tax bracket in retirement as you will pay taxes when you withdraw money from the retirement account.

With a Roth IRA, your contributions are made post-tax, you’ve paid taxes on those funds and withdrawals will be tax-free. In a lot of scenarios, even without the compounding pre-tax dollars and after retirement tax bracket expectations, Roth IRAs are a more beneficial retirement vehicle.

To figure out which is better for you, think about your current earnings and tax bracket and what you expect your income and tax rate to be when you retire. If you’re not sure which type of IRA to choose, a financial advisor can give you guidance.

Get Help with Retirement Planning

DOAAR has a team of professionals who can work with you to craft a retirement plan tailored to your needs and objectives. We can discuss when you plan to retire, how much money you will need, and how much risk you are comfortable with to help you choose the best retirement account to meet your goals. Contact us today to learn more!

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