Craig Thornburrow

The Necessity Of Individual Retirement Accounts

With the largest population of baby boomers contemplating retirement in the very near future, having an Individual Retirement Account will become the primary focus of their attention.  This article will explore Roth IRA’s and the more traditional IRAs available today.

At a time when the economy is in decline, choosing the appropriate individual retirement accounts has become a critical issue to those who are seriously considering retirement.

Many individuals are wondering if the 401K plans provided by their employers will be able to withstand the daily fluctuation of the stock market, and rightly so.  Needless to say, these are uncertain times that may call for an alternate method to ensure one can retire.

To this end, let’s take a look at two individual retirement accounts which may be the most advantageous.

A Roth individual retirement account is based on contributions made after taxes and the taxes are not deductible.  However, the earnings are accrued until you reach the age of 59½ at which time you can begin to withdraw funds.

In addition, with Roth IRAs, if you leave the funds in the account for five years after age 59½; you are entitled to all of the money tax free.  Conversely, you can leave the funds in your account for as long as you like.  This is especially significant for individuals who start a career at a lower salary and gradually fall into the higher tax bracket.  The income derived from Roth IRAs would be substantial.

Traditional individual retirement accounts, on the other hand, are based on a tax deduction first and then the tax-deferred funds begin to grow.  In other words, if you retire and withdraw money from the IRA, you would have to pay tax on the earnings.  The difference between this and the Roth IRA is that if your salary increases you will have to pay more tax.

While this may sound complicated, it does require a great deal of attention and planning.

One thing is clear, however, most experts agree that the Roth individual retirement accounts are the best alternative to traditional individual retirement accounts since not everyone can qualify for the latter and is mostly geared towards those who have a lower tax bracket upon retiring.

Another factor to consider is that with Roth IRAs, you can keep the funds in your account indefinitely whereas with the traditional individual retirement accounts, you have to withdraw by a certain month and day after you reach the age of 70½.

Also keep in mind that withdrawing funds from any individual retirement account will cost you a pretty penny in penalties.

With the cost of healthcare insurance, prescription drugs, food, gas, and other necessities on the rise; what was once considered a time of relaxation and enjoyment can be plagued with worry and debt.

Choose an individual retirement account early and contribute as much as you can.  While statistics assert the retirement age will most likely go beyond 62, considering what we know now, that figure may change considerably in the near future.

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