Traditional IRA
A Traditional IRA is a type of retirement account that allows you to make pre-tax contributions. The money in the account can grow tax-deferred until distribution. You are allowed to deduct your contributions to a Traditional IRA based on your income for that year. Each year there is a phase out amount for what you are allowed to deduct from your gross income. Traditional IRA are beneficial if you are a high-income earner now but project that your income will decrease at some point in retirement. You must take money from a traditional IRA the year your turn 72. You also need to plan for the long-term when contributing to an IRA because there are limited number reasons you can withdraw without paying a 10% penalty.
Unreimbursed Medical Expenses
Health Insurance Premiums while unemployed
A permanent disability
Inheriting an IRA
Higher Education Expenses
A home
72 T distribution
To pay the IRS
Older than 59 and Half
A Traditional IRA is not an investment. You can put investments inside the IRA however if you just let the cash sit inside the IRA then it defeats the purpose of tax deferred growth because cash is a depreciating asset. You should start the IRA when you are younger before your peak earning years. If you wait too late you will not be able to contribute enough and you will not have enough time for it to grow unless you are an extremely sophisticated investor.
This is a great tool to have however it is not the only retirement tool. The goal is to have income and assets in retirement. You do not need specific accounts. These accounts are a more effective way however they are not a necessity. Before you decide, you should contemplate all your options by sitting down with a professional.
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