Do You Need An Individual Retirement Account?

An individual retirement account may provide the financial cushion that can make the difference between comfortable and uncomfortable golden years.

To save or not to save; is that the question? For today's baby boomers and Generation X, it may well be. While it may be tempting to rely on a job-related retirement pension or a healthy stock portfolio, in reality you are probably better off if you depend more on yourself than on outside forces to make financial preparations for your retirement.

Many options can be explored, such as a 401K plan, a mutual fund account, or a simple savings account or certificate of deposit. But one of the best ways to save for retirement is through opening an individual retirement account (IRA) in anticipation of the day you no longer hold a job in the public sector. Here are some of the advantages to this strategy:

1. You can have automatic deposits made each month. By special arrangement between your bank and employer, the allowable donation, which is up to two thousand dollars per person each year, can be deducted each month from your paycheck before you receive the balance. That way you never see this income and will not miss it. Approximately $166 per month will go straight to your individual retirement account on a monthly basis.

2. Your monthly contributions will compound to increase profit. In addition to the interest your account earns each quarter, the earnings compound, so that over time, your account makes income on the earned interest as well as the principal of each month's $166 contribution. Your money will make money, leading to additional profit for you.

3. The interest is tax-free until you use it. You must pay taxes on most earnings each year; in many cases, taxes can take a hefty bite of your profit. But an individual retirement account continues to grow unhindered until the day you begin to use it. Very few investments offer this kind of advantage.

4. Both spouses can contribute to double household benefits. Ask your banker or credit union official about the rules governing married folks' contributions. It is likely both you and your spouse can contribute the maximum amount as individuals without penalty or additional taxes when the account matures.

5. You may spend less en route to retirement. Putting away a monthly payment toward an individual retirement account means that income never hits your wallet directly. Thus, you have a smaller chance of spending it for other things. Of course, you may decide to withdraw some of your profit from the account, or even a portion of the principal if a need arises. But knowing there may be a pre-payment or early withdrawal penalty is often enough to keep some IRA holders from using up their savings.

Check out other savings plans as well to be sure you will be best served for retirement by the financial strategy you decide to use. It may help to get two or more opinions. A majority of IRA holders have expressed satisfaction with their accounts and results, so this may be a good plan for you as well.

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