As we approach the end of summer and start to think about our long-term plans, both into 2024 and beyond, one of the main things that comes to mind is retirement. It is the end goal of life for many of us – we want to be able to kick back, relax, and not have to worry about working.
Of course, that requires a whole lot of planning to realistically achieve. Retirement is expensive, to put it lightly. There are a lot of ways that we can get ready for it, but all need a lot of attention from us as soon as possible.
Even if retirement is not necessarily on your radar just yet, we are here to tell you that it probably should be. It’s never too early to start, as resources like this one demonstrate. If you would like to learn more about how the preparation works, you have come to the right place.
One of the biggest ways that people get ready for retirement is by opening savings accounts specifically designed with our golden years in mind. Today, we will be focusing on IRAs, also known as individual retirement arrangements.
What are Individual Retirement Arrangements?
Individual retirement arrangements (IRAs) are a type of savings account that offers special tax benefits to the account holders. They are intended to be long-term savings accounts, so there are certain rules surrounding when you can withdraw from them (usually, you have to be at least fifty-nine to do so). Otherwise, there will be a fee when you withdraw.
The types of tax benefits vary per type of IRA, and we will be covering that next. For now, something you will want to keep in mind is that there are annual deposit limits. Before the age of fifty, that is usually five thousand dollars. Eventually, it will rise to about ten thousand dollars, but this depends on several factors, so it is a good idea to talk to your financial institution or advisor.
As far as how to open an IRA, the process is fairly simple. Most banks offer them, along with investment companies like Goldco.com or personal brokers in some cases. All you have to do is visit a website or in-person location and select the IRA options if they are available. The rest should be explained to you along the way.
Most of the time, when you start the process of opening one, this is the type that will be recommended first. There are a few reasons for this, but it is largely because this is how most people get started with their savings for their golden years. How do they work?
Well, contributions to these accounts are eligible for tax deductions, but because of that, you can only deposit about six thousand dollars per year (in 2022-2023). Still, that is a healthy amount, especially because whatever you contribute will decrease how much taxable income you are charged for in a year.
Anything deposited into a traditional one will be tax-deferred, so you will be charged taxes when you withdraw it instead. This is ideal for people who think that they will be in a lower tax bracket once they retire since it will save you some money compared to what you may have been taxed while you were still working.
Just remember the annual contribution limits, and keep in mind that the tax-deductible aspect of your annual deposits will depend on whether your work has a retirement plan for you as well. A lot of these figures are subject to change, as well, so consult with experts before making any decisions.
These are quite similar to traditional ones as far as contribution limits and tax deductibility go. However, they work inverse when it comes to taxes. You pay the taxes up front, but when you withdraw from these individual retirement arrangements, you will not owe anything. If you believe that you will be in a higher tax bracket when you retire than the one you are in now, this may be an option for you to consider.
At first glance, these might seem quite intimidating. With a self-directed IRA, you have a lot more control over the type of assets that are deposited. They do not have to be limited to paper currency, meaning they are a lot more flexible. However, it does come with increased responsibility, which scares some investors and savers.
The nice thing about them in comparison to a regular investment account is that they still give the holder the tax benefits that we discussed above. Sure, the deposit limit remains the same, but it also means that you can have the tax-deferred, or you can choose to pay it upfront. You get to decide if you want it to follow the traditional model or the Roth one.
Gold and Self-Directed IRAs
You have probably heard of gold IRAs by now, and if you did not know, they are a type of self-directed one. The holders simply choose to specialize in precious metals investing. You can even get assistance from a gold investment company or a financial advisor in opening one if you are not sure of the direction you want to go.
The key thing to keep in mind is that there are some limitations as far as what you can deposit into a gold IRA. Collectibles like gold silverware just are not eligible. Certain coins and bullion are, though, so there are definitely accessible ways to open a gold IRA.
Are Gold IRAs Worth Having?
This leads us to the big question of the day: is it worth opening an account like this? Well, if you are someone who already invests in gold (or silver, platinum, or palladium), then the answer is a no-brainer: yes, it is worth it. The tax benefits are quite handy, especially with the deductible potential.
This is especially true because a lot of the time, purchases of precious metals are taxed fairly steeply. The ability to make some money back on that through our annual taxes is quite nice. What about if you have not taken the plunge with precious metals yet?
Well, it will certainly depend on your current financial status and the diversity of your investment portfolio. However, because gold serves as a hedge against inflation, one of the best ways to invest in it is to do so in an individual retirement arrangement. By design, it is an asset that thrives on the ability to sit and not lose its value even with inflation rates rising.
There are some drawbacks, though, such as needing to store the bullion or coins safely in a space where they will not be damaged. Having to open a self-directed IRA can also be a difficult thing if you are not familiar with it just yet. Thankfully, that last issue is solved pretty handily by advisors and investment companies that can lend a hand.
If you have been debating it, take this as your sign to at least learn a little more about how these retirement accounts work. As we said, it is never too early to start preparing. This is truer now than ever before given our current financial climate – who knows what the future will hold? Why not do our best to be prepared for whatever it throws at us?