Retirement Planning is a Must – Why Not Start with an Individual Retirement Account?
“I’m not going to make it to 65 years old”, “retirement funds are a scam,” “I’m self-employed, no options exist for me,” and other misleading and mythical statements are often said when a retirement fund is brought up in discussion. However, if you’re self-employed, a freelancer, business owner, sole proprietor, or independent contractor, having a retirement fund is essential for your future. It’s also crucial for employees to have a retirement fund, but they generally have access to a 401k plan. That said, anyone can and should consider starting an Individual Retirement Account, aka IRA.
There are several different retirement accounts for individuals to select from, but among the easiest to open and manage are individual retirement accounts. However, many people are either intimidated or just unfamiliar with them and how beneficial they are. I guess talking about retirement accounts doesn’t seem cool – it’s not lit, but it is. Why wouldn’t you want to be in a position where you can peacefully and comfortably enjoy your life without stressing over money?
By contributing a small amount of cash into your Individual Retirement Account every month, you can better position yourself to attain financial freedom.
The Basics – Roth IRA
If you’re a forward-thinking person, a Roth IRA account is the perfect match for you. A Roth IRA doesn’t tax you when you pull out your funds at retirement age. That means your contributed money plus interest and any gains are not taxed at all! The catch is you have to hold it in that Roth IRA account until retirement age.
Many people hear this fact and think, “well, what if I don’t live that long.” Well, first, chin up, buddy, you’re going to live a long and happy life. Second of all, the money will go to your kids or whoever else you have listed as your inheritors on your Will or beneficiary in your Webull or M1 Finance account.
You can add up to 6,000 dollars a year, and the government will pretty much match your contribution. This means free money that all you have to do is consistently add to and then wait to pull it out. Also, with a Roth IRA, you’re not required to pull it out at a certain time. This means, if you’re choosing to still work after the legal retirement age, you can continue to add to your Roth IRA even more.
The downside of Roth IRA accounts is that you don’t get a current-year deduction on your tax return for the money you put into the account. However, if you’re willing to show patience and wait until retirement age, you’ll get the most money out of a Roth IRA account. If you have patience and like money, you might want to think about asking a Roth IRA account to be your valentine this year.
The Basics – Traditional IRA
Another type of IRA account is a traditional IRA. This account is for the people that want to save now, not later. With this account, you will get a current-year deduction on your tax return, which will lower your cost of contributing to the IRA due to the refund you’ll receive on your tax return.
This means that instead of contributing $6,000 a year, you’ll be contributing around $5,400 a year (this is a very rough estimate, but you get the point). However, your interest and gains will be taxed when you pull this money out at retirement. This means that you save in the present but lose out on money in the future. With inflation and interest, this means that in the long run, you can end up losing more money than if you went with an IRA.
You can still put in up to $6,000 a year, similar to the Roth IRA. The other major difference with a traditional IRA is that after age 70.5, you must pull out a minimum distribution from the IRA, even if you don’t need to spend the money then. This won’t matter if you’re planning on pulling it out at retirement age anyway, but it’s good to note.
Start Your Retirement Account with M1 Finance or WeBull
Which Retirement Account is Better?
Like anything in life, everyone has differing opinions on if a Roth IRA or a Traditional IRA is better. This is because the choice will highly depend on your own unique situation and needs at the moment. If you need that deductible given to you on your tax return, a Traditional IRA may be better.
However, it is generally advised to go with a Roth IRA if you can. A Roth IRA has the benefit of no taxes when you pull out your money, meaning what you see is what you get. You can also keep your money in the Roth IRA and add to it for a longer period of time since there’s no maximum age you have to take it out. Of course, I am not a financial advisor so you should consider speaking with one and/or your CPA for tax and financial advice.
But it’s vitally important to start saving for your retirement fund today. The earlier you get started, the more you’ll have saved for the future. Who knows, you may even be able to retire early because of your savings and investments! Without a retirement fund, you’ll likely have to rely on government assistance. In the past 4 years, we’ve seen funding for social security and other elderly care programs be drastically reduced. We can’t rely on this to be our only savings for our future.
Start Your Individual Retirement Account Today!
The earlier you start your retirement account, the better. Even if you can only add a little to it this year, eventually, it will add up to big numbers for your retirement. If you want extra guidance in this process, consider speaking with a financial advisor for clarity, or you can also learn more by checking out my blog. Specifically, the personal finance or retirement content. Now once you are ready, say “I Got This” to your perfect retirement fund, which may or may not include an individual retirement account, and start planning and working towards financial freedom today!
* additional details on Individual Retirement Accounts can be found on Investopedia here.