My Investigation Into IRAs

American investors have several choices when it comes to how to save for retirement. These choices include IRA accounts, 401(k) accounts, pension plans and more. An IRA account is a simple way to save for retirement on either a pre-tax or after-tax basis depending on the type of IRA used. There are two basic types of IRA, a traditional and a Roth.

Traditional vs Roth IRA

Traditional IRA

A traditional IRA can provide some potential tax advantages. The funds deposited in a traditional IRA may be fully or partially deductible, and gains made in the account grow tax-free until distributions are made.

A traditional IRA account must be held by a custodian which could be a bank or brokerage. These different custodians may allow for various types of assets to be purchased and held within the IRA account. For example, a brokerage may allow you to buy stocks or mutual funds, a bank may offer certificates of deposit and a self-directed IRA custodian may allow for access to precious metals or real estate.

The biggest potential benefit of a traditional IRA account is the fact that the funds can grow tax-free until they are distributed. If you own stock, for example, you may earn dividends. Those dividends may be reinvested to purchase more shares and increase earnings from dividends. A traditional IRA account puts the awesome power of compounding to work for you. Because no taxes are being paid on the funds, you have a greater amount of funds to invest and work for you over the years.

Once you reach the appropriate age and begin taking distributions from your traditional IRA account, those distributions will be subject to federal income tax.

Roth IRA

Like a traditional IRA account, a Roth IRA may allow the investor to purchase and gold various asset classes such as stocks, bonds, mutual funds, real estate and more. The primary difference between a traditional IRA and a Roth IRA is that contributions to a Roth are not tax-deductible. Distributions on contributions from a Roth IRA may, however, be withdrawn tax-free and penalty-free if appropriate guidelines are followed.

A Roth may be beneficial if you believe you will be paying a higher tax rate in retirement than your current rate. A Roth may also be considered by those who are looking to minimize their tax liability in retirement or who may want to leave their assets to heirs upon their death.

Both traditional IRA accounts and Roth IRA accounts have numerous rules and guidelines that must be carefully followed and complied with. Failure to do so could result in taxes and penalties and a loss of tax-deferred status on assets.

Navigating the world of retirement savings vehicles can be tricky and it is always best to consult with your tax professional when it comes to retirement planning and tax related questions. Other than making sure you set up the appropriate account type, the most important thing is to begin saving sooner rather than later to maximize the power of compounding.

Greetings, Internet!

As I am writing this I’m chuckling to myself because I have the distinct impression I’ll be the only person that ever reads this wee blog of mine. I am currently in my first year at university. Though it is early in my university career the pressure to declare a major subject to study is building at the edges of consciousness. As the days and weeks go by I find the pressure is building, thoughts and possibilities issue forth from the edges ricocheting off the inside of my skull and into conscious thought. This process has built up exponentially and I now find the necessity to write my thoughts down. So, regardless of whether or not this blog finds an audience it will serve a distinct, focused purpose for myself: Choose a field of study and therefore a path on which I shall walk the rest of my life, or at the very least, the next stage of my personal journey.

Throughout our childhoods we are constantly asked the question, “What do you want to be when you grow up?” As I’m sure it does with most people my answer to that question has changed with age and experience. My mother tells me that when I was four years of age I bounded into the family room, my baby blanket tied around my neck, and exclaimed my intention to be Superman when I grew up. The year after I traded in my cape for all-black pajamas with matching balaclava knowing, with nary any doubt, my goal in life was to be a ninja.

As I grew older I went from wanting to be an architect (I’m not sure I even knew exactly what being an architect entailed but…) to being a sailor and/or artist and/or pilot, etcetera. Besides my brief interest in architecture the underlying desire beneath my different career options was the need to be free. Free to work where and when I want to work, go where I want when I want and not have my geographical location get in the way of my ability to support myself financially and live the type of lifestyle that I desire. It is out of this desire that my interest in investing was born.

Once I came back to Earth after a certain amount of time drifting amongst the clouds with dreams of huge stacks pound notes and dollars and yen I came to a realization. In order to be a successful investor I must needs educate myself. So as the weeks and months go on I intend to use this blog to organize what I’ve learned as a record for myself (and maybe others) so that I may make an informed decision about my future and whether or not that future features me as an investor or in some other role.

My mind reels at this educational process I’m about to undertake. To start off I intend to focus on a few different subjects. I intend to learn about the stock market (what it is, how it works and maybe even a little history). I intend to research different types of trading especially Forex trading because it simultaneously baffles and intrigues me. I admit I start this process with very little current knowledge but that’s alright, I’m here to learn.

I invite any who read this to take this journey with me.

I know not where my future lies but I intend to find out!