People often put off the creation of their Individual Retirement Accounts until a date when their retirement age is closely approaching. This is not a financially reasonable practice, as having an IRA account involves several benefits regarding tax savings and safer investments.
Financial experts advise the creation of an Individual Retirement Account as soon as you acquire your first source of income. Statistically people who have contributed to their retirement account before the age of 40 enter the retirement with much more money that those who contributed the same amount of funds, but put it off until the last 10 or 20 years before their retirement age.
There are many reasons why making smaller IRA deposits over a longer period of time is more reasonable that depositing large amounts of money over the span of a dozen years. All of your IRA accounts are subject to a deposit limit of $5,000 per year, so to take maximum advantage of it, you will have to start making contributions as early as possible.
Contributions to a traditional IRA are tax-deductible, meaning that you will receive tax savings in the year of deposit. However, it’s important to know that the deposited amount will be taxed upon your withdrawals from the retirement account.
Roth IRA offers no tax savings during deposits, but your post-retirement withdrawals are not taxed either. There is also no tax involved for any investment operations that may be carried out with the funds in your retirement account, making Roth IRA a great vehicle to profit on stocks, bonds, mutual funds, real estate, commodity market and other forms of investment.
Whatever plan you choose, you will appreciate the tax savings and investment benefits involved. You can even have both, although the annual limitation will apply to all your deposits.