For those who do not have an employer-sponsored retirement plan or who want to supplement the plan that they have, an Individual Retirement Account provides a means for investment that has very few limits.
What Is an IRA?
An IRA is a tax-deferred vehicle that allows you to claim your contributions as deductions on your tax returns. It is an account that allows you to invest for your retirement, subject to certain rules. Not only are your contributions tax-deductible, but you do not need to pay taxes on investment gains until you withdraw the money.
How Can You Get an IRA?
Anyone can open an IRA. Any type of brokerage account can be designated as an IRA at the time that you open an account. All you need to do is to find the right broker that allows the type of investments that you want. In other words, you do not open up a specific retirement account. You open an account and elect to treat it as a retirement account.
What many do not know is that an IRA is a versatile investment account that allows you to hold a variety of different instruments with favorable tax treatment. Since one of the primary benefits of the IRA is tax deferment, it is the IRS who dictates many of the rules surrounding this investment account.
Practically any kind of stock, bond or commodity is permitted for an IRA. This includes physical commodities such as gold. In fact, gold is a great investment for your IRA because it is a hedge against the effects of inflation on your portfolio. As Goldco states, “When you own physical gold coins, their value is inherent and can’t be diminished by the actions of governments or central banks. If and when you decide to sell your gold for dollars, if the dollar has gone down, you’ll simply get a higher price (more dollars) for that gold.” With some basic research, you can learn more on how to hold physical gold in an IRA to determine if this is something you’d like to invest in.
Once you have the IRA, you are not able to take distributions from it until you are 59 1/2 years old. This is the tradeoff for being able to defer taxes on the account until then. If you take an early distribution from your IRA, you will need to pay taxes on it plus an early withdrawal penalty.
What Is Included in an IRA?
Stocks are included in an IRA. What makes this a great investment vehicle is that you do not need to pay taxes on dividends or capital gains until you use the money from your IRA. This allows for your investment to compound over time and helps you build wealth in your retirement account.
The same goes for bonds. The interest that you receive on these bonds is tax-deferred and you can reinvest it as you earn it.
You can even purchase real estate for your IRA, provided that you are not using it as your primary residence. This means that, if you want to buy an investment property and rent it out, your IRA can be a vehicle for this business venture.
There is very little reason not to have an IRA working on your behalf. With some savvy and smart investment, you can have your retirement taken care of when you need the money.
