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What are IRA funds?

What are IRA Funds

 

Individual Retirement Account funds, better known as IRA funds, create a way to save for retirement by investing for retirement. They consist of a collection of investments that can include stocks, bonds, money market accounts or other types of investment tools.

Individual Retirement Accounts can seem daunting to some people, as there are rules regarding when you can start one, when you can withdraw from one, and what types of income can go into one. But a little research is all it takes to be aware of most of the major rules. Because there are two types of IRA funds, it's important to be clear about which type you mean when you start researching, as the rules are different for each type.


Traditional Individual Retirement Accounts


Traditional Individual Retirement Accounts offer several advantages to a savings account or investments that are not linked to a retirement account. Traditional IRA funds offer higher interest rates than savings accounts, and taxes on the money that you contribute to them is deferred until the time that you withdraw it.

To discourage people from trying to use a traditional IRA as a way to avoid taxation of income, there are penalties for not withdrawing from your IRA during the appropriate time frame. But what if you don't want to pay the tax on that income during your golden years?

A Roth IRA requires you to pay taxes on your contributions when you make them, so that what is present in the account when you retire is what you keep. There are limits on how much you can contribute, based on your income and your age, but a Roth IRA can be a secondary retirement account, so you can invest anything over your annual contribution limit into other types of retirement accounts.


Consider a Roth IRA Fund


One of the disadvantages of the Roth IRA fund is the annual earned income limits for contributing to an IRA. If you are making less than $110,000.00 a year, you can make contributions to your Roth IRA for that year.

If you get a raise and are making more than that amount, you can no longer make contributions to your Roth IRA, but you are eligible for other types of retirement accounts, and the money in your IRA fund is still accessible to you when you retire.

One of the advantages of the Roth IRA is that you can contribute to it for as long as you'd like. If you work well into your sixties and seventies, you can still contribute.

Retirement planning isn't always easy, but the earlier you start, the better off you'll be. Talk with your family and a financial professional about starting an IRA fund.


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