Preparing for retirement means searching for investments that will bring peace of mind. For many investors, the logical choice is a traditional IRA. This is a tax-deferred individual retirement savings account. This investment option carries a number of benefits for those who are seeking a sound plan for a comfortable retirement.
One key advantage of a traditional IRA is that a number of common options can be pursued as investments. Stocks, bonds, mutual funds, ETFs, money market funds and CDs may be considered for potential investment options. Investors should also consider the tax benefits of a traditional IRA. Tax-deductible contributions may be made with a deductible type of IRA, and tax-deferred earnings are also possible with a traditional IRA. Deferring of taxes means the IRA will grow faster than a type of account that is taxable. Taxes are applicable, however, once withdrawals from the account are made.
Anyone who has taxable income and is under 70 ½ can contribute to the IRA. To fund the IRA account, investors can also transfer an IRA, roll over an old 401(k) or use money that has been earned. There are some contribution and deduction limits, however, with traditional IRA accounts. With traditional IRAs, income limits are called deduction limits. This is the amount of a contribution from income that can be deducted before incomes taxes are applied, and it is limited if a person is covered by a plan with an employer. Contributions are limited to $6500 per year for investors who are 50 or older, but this limit does not apply to qualified reservist payments or rollover contributions.
For many investors, the traditional IRA is ideal. These accounts also offer welcome flexibility to people looking for retirement investment options. Because these accounts are so flexible, investors should be careful with them. Mistakes are easy to make, but they can be costly if the IRS catches them.