Individual Retirement Account
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An individual retirement account can be a part of the three legged stool of which so many financial experts speak. This stool is representative of a sound retirement plan which includes a company pension, social security and savings or an individual retirement account, often called an IRA. An IRA can be both a company provided plan or a self directed account and there are several different types of these savings accounts. Each provides different advantages and one must decide which one will most clearly be advantageous in terms of accomplishing "life after work" goals and aspirations. A look at each kind of plan is helpful for personal application.
The discussion needs to begin with the rollover IRA and is a very relative subject. Statistics say that a person may have six or seven or more different employers during a lifetime. Each of these employers may offer an individual retirement account plan. When an employee leaves that particular company, there may be a sizable contribution in that IRA account and so a rollover IRA is the perfect solution. This type of plan enables the parting employee to escape any penalties by rolling into the new employer's "life after work" plan when the day for eligibility arrives. Employees can in most cases leave money in the plan from the past employer, but that strategy has a number of accounts that could need monitoring over the years. Additionally, more purchasing power can be had when one lump sum is put to use rather than a number of small accounts attempting to grow on their own.
The traditional individual retirement account usually allows for tax deductible contributions to the account. The money that is now tax deferred will be taxed when taken out after retirement begins. There is a maximum allowable contribution and the consumer must check to see how much that would be for the year in question. A SEP IRA account is provided for those who are self employed and enable those individuals to contribute to a traditional account in the employee's name. One of the most intriguing of the more traditional plans is the self-directed IRA that opens a host of possibilities for those who are retirement age but not yet ready to retire.
This IRA is one in which the owner makes decisions on the account's behalf. For this to work, the self-directed individual retirement account must be held not by the owner but by a trustee or custodian. In this plan the IRA money can be used for real estate purchases, stocks, mortgages, franchises, and tax liens. This is perfect for the person coming to the allowable age of IRA withdrawal and wants to start another business such as a hard cash lender or buy a Dairy Queen franchise or join in partnership with an already existing business owner. There are some legitimate companies online that offer to serve as the custodian for such accounts for a small percentage fee based on the entire IRA. When times often get rocky and many uncertainties arise in life, learn to live with the perspective of the psalmist. "My days are like a shadow that declineth; and I am withered like grass, but thou O Lord, shalt endure for ever; and thy remembrance unto all generations." (Psalm 102:11-12)
Individual retirement account plans must begin withdrawals by the time a person is age seventy and a half. At that time taxes will be deducted from each withdrawal, and if no withdrawals take place, the government will begin taxing the account automatically. One of the advantages of waiting until a person is over seventy to begin withdrawing is that the person will probably be in a lower tax bracket and not subject to as much income tax anyway. On the other side of the coin, a person cannot withdraw from an IRA except under certain prescribed conditions until a person is fifty nine and a half. Withdrawals before that time are subject to an automatic twenty percent federal tax withholding and a ten percent penalty.
What a person wants to do in life after work will certainly dictate how much money he will want to have in readiness for that day the gold watch is given and goodbyes are said at the office. Television commercials promoting retirement programs show people carrying around numbers that portray how much they want to have for retirement. All persons in the commercial have over a million dollars portrayed being carried under their arms but some have almost three million. Those high figures must be from people who want to live pretty well in old age but many reliable sources report that in reality few Americans have enough saved for retirement and many have next to nothing. The reality of life after retirement and the lack of a steady income will come like an arctic wind to millions who are unprepared. Remembrances of missed opportunities to start and continue an individual retirement account will linger.
Since many people are self-employed and have no company pension, a two-legged stool will have to do. But since the future of social security is in real doubt, the two legged stool may become just a pole to lean against. If that is true, then the individual retirement account must be strengthened as much as possible for up and coming retirees. It is never too late to start contributing to this type of savings account, but the earlier in a person's life certainly is the better choice. No matter what the future holds for a person, God is ready to help His children through the hardest of times.
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