IRA stands for individual retirement account and was set up to help individuals later on in life when they reach an age where they stop working. As of today, the IRS deems retirement age to be 59.5 years old. IRA's are a great way to start saving for retirement because there are several benefits when you set up an IRA.
One of the biggest advantages of setting up an IRA are taxes. Money in your IRA account grows tax-deferred... meaning that any earnings that are made that year and not taxed, but rather re-invested. This allows your IRA to compound and grow each year.
The IRS only allows you to contribute so much of your earned income each year into your IRA, however this is also a deduction from your taxable income. This is a nice benefit for most people because that means they pay less taxes in that current year.
As mentioned before, IRA's are designed to benefit the individual later on in life. So, if by chance you need to borrow or use the money anytime before you turn retirement age set by the IRS, they will penalize you 10% on the amount you take out of your account. There are some exceptions to this rule and they constantly change so it's best to consult with a good tax professional.
What are my investing options once I have an IRA?
Once your IRA has been established, there are lots of investment options for you to choose from. It's important to know all the different options and risks associated with each because this is your future we're talking about here. Some investments are riskier than others but because of the risk, the returns are much greater as well. The goal is to be educated to know where you stand based on your age, your income and how soon you plan on retiring.
Most individuals consult with a licensed financial planner who will share with them the different IRA investing options available. Most will recommend either stocks, precious metals, mutual funds, and cd's. However, very few will even mention one of better options available today... real estate.
Most don't even know you can convert your IRA or 401k into a self-directed IRA to invest in real estate. A safe CD will return anywhere from 2% to 4% tops. Stocks are very risky but the returns can be nice if you pick the right ones. Real estate right now is returning anywhere from 15% to 30% and the best part is that with the right help, it can be very low risk.
Banks are loaded with inventory because of all the foreclosures and they are dumping properties for $.10 - $.20 on the dollar in certain areas of the country. Areas where there is a huge demand for rental homes. So a $30K investment will produce you a $600 a month rent check which is a 20% return each year. It's not hard finding the properties, rather the more challenging part is finding the best neighborhoods, with low crime rates and good neighbors.
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