It is not unusual to hear an anecdote that goes, “Life begins at 40”, but just currently I have heard a host from a lifestyle show who said that, “Life begins at retirement.” Maybe he is right.
Retirement is a time to focus on hobbies and things that a person cannot do before may it be because he/she is busying rearing his/her kids or he/she simply cannot afford such luxurious activities. An easy and happy retirement is not served on a silver platter but rather a long tedious journey of depositing of contributions to a retirement account.
In order to look forward to such retirement with gusto, it is wise to save up for it. One of the most common forms of savings for retirement is applying for a retirement account. Different variations and plans are available in the market like 401K and IRA.
Now, we will be discussing everything and anything on IRA basics.
By definition, Individual Retirement Account (IRA) is basically a savings account with tax break. Often, IRA is identified as a retirement investment however; it is actually a nest of the all investment-stocks, mutual bonds, real estate, etc-of the IRA holder.
Opening an IRA account is a decision you make on your own unlike 401K which is provided by the employer. Before applying, you must check out the IRA rules on eligibility since income and employment status are considered. In generally, age limit for IRA is less than 70 ½ year old and you must have a source of compensation in form of wages, salaries, etc. If IRA is just a compilation of all investment, why would it be beneficial to place your retirement savings in this account? The answer is simple because IRA helps you to temporarily escape Uncle Sam’s tax wrath. Nevertheless, the government limits contribution to only $5,000 a year. This system of retirement savings may seem to be a perfect answer but IRA rules can be tricky and confusing.
For instances, withdrawals under the magic age of 59 ½ means incurring you a 10% penalty.
Furthermore, upon reaching the age of 70 ½, IRA owners are required by the government to take yearly minimum withdrawals. These withdrawals are subjected to tax and failing to withdraw yearly entails you to penalty of 50%.
