1. The traditional IRA, which is coincidentally the original type of IRA, is good for people who don't have an employer option because contributions are fully deductible. The IRA must be used before you turn 70, and can not be used before 59 and a half without incurring a 10% penalty on the amount withdrawn.
2. Roth IRA's, along with traditional, allow a person to contribute up to $3000 a month towards the fund. The added benefits of a Roth IRA include the ability to withdraw cash without penalty for certain purchases (such as first time home purchase and disability)
3. As the cost of tuition continues to rise by 5 to 10 percent each year in some cases, many families are deciding to use the educational IRA to plan for their children's college education fund. The benefit of this type of IRA is that typically, money invested today will be worth 20 times as much in 20 years, so that education won't be nearly as expensive. However, there are penalties for taking out the money if it is not used for tuition.
4. A few situations where the 10% penalty does not kick into effect include: the death of the account holder, withdrawals are used to pay non-reimbursed medical expenses, and the money is used to pay back taxes to the IRS after a levy has been placed against the IRA.
5. There are at least 2 things to watch for with IRAs and qualifying exemptions; the holder of an IRA is subject to a 5 year waiting period. A speculator couldn't, as an example, deposit $3,000 in their IRA this year and withdraw it next year penalty-free whether or not it might otherwise qualify as an exemption.
Additionally, if you do not want to take risk, you would invest your money in certificates of deposit or money market funds that provide a risk-free interest rate upon maturity. However, these interest rates are lower than the percentage returns provided by riskier stocks. If you make losses on your IRA (Individual Retirement Account) investments, you can deduct them from your tax return ONLY if certain conditions are fulfilled.
In the end, the benefits of an IRA seem to outweigh the risks involved (being as there are essentially none) and provide a higher rate of return as compared to certificates, or bonds. Please choose your financial adviser properly and research all of your options before coming to a decision.
Types of 401(K) Contributions
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