Investment Retirement Account

An investment retirement account is one of the best ways a person can insure that life after working fulltime can be comfortable and maybe even productive. The idea of taking it easy after a life of work is a relatively new concept, probably invented by financial planners and the makers of shuffleboard equipment. Until the 1930's people worked until they could no longer do so and then were taken care of by their children. But the modern view of life after work as an opportunity to do things that one didn't get to do in years past or be able to live a number of years in relative ease does have its admirers, and so the importance of an investment retirement account is prominent in the thinking of many Americans. The problem is knowing what kind of plan is best for each person. There are, after all, several varieties.

The first type of investment retirement account is the traditional IRA, or individual retirement account. The government will allow a person to put away up to five thousand dollars a year, paying no tax on the money until it is withdrawn. If a person is over the age of fifty, the amount can be up to six thousand dollars. This type of "life after work income" is set up through an account and a custodian chosen by the owner of the account. A person can go online and find a plethora of banks and other institutions that can assist a person in setting up a "life after work income" plan. These accounts can be based on the stock market, or on another investment model and the only requirement for the traditional IRA is that the money going into the plan must be earned income. While up to six thousand dollars may be deducted for contributions going into an IRA, money withdrawn will be taxed, and with a penalty in certain circumstances if taken out early.

The circumstances under which a person can take money out of an IRA without penalty are varied. One may take out ten thousand dollars for the purchase of a first time house. Additionally, certain student expenses can be covered under an early withdrawal action. If a family has a catastrophic medical expense and the amount is more than 7.5% of the account holder's gross annual income, money can be withdrawn as well as taking out money out after a job loss to pay for health insurance. And if a plan holder dies, a beneficiary can withdraw all money without penalty but it will be taxed.

A Roth IRA is another form of an investment retirement account with different tax implications. In this case, there are no deductions provided for money put into a Roth IRA. But the good news is that on the backside of the plan, no taxes are deducted at withdrawal time. The Roth allows early withdrawals without penalty or taxes, and as long as the person has reached fifty nine and a half years old, the money can start to be used as "life after work" funds. It is very important to plan for the future and have enough money through an investment retirement account, but Jesus said another investment is even more important. "But lay up for yourselves treasure in heaven where neither moth nor rust doth corrupt and where thieves do not break through nor steal." (Matthew 6:20)

The 401(k) plan is another form of investment retirement account, often offered in larger companies or businesses for their employees. This kind of account is one in which the owner's company opens up a retirement plan on behalf of the employee and matches the contributions made by the employee. This is a wonderful way to double one's investment in retirement even before interest kicks in! The drawbacks are several with this kind of investment retirement account however. The most glaring is the fact that the company chooses the custodian of the money. The custodian, often an investment company, may only offer a few options for where to place one's money, and if the options are not well performing, such as its mutual funds, the account owner doesn't have anywhere else to go.

As in the case of those working at a small business or who are self employed the SIMPLE IRA is a likely option. The acronym SIMPLE stands for savings incentive match plan for employees. Unlike the 410(k), the emp0loyer will match a percentage of the employee's contributions. The money taken out of a paycheck is tax deductible but taxed when withdrawn. Early withdrawals must follow the same qualifications as IRAs. Another option for self employed persons is the SEP-IRA. It allows up to one quarter of a person's income (up to $44,000) to be contributed each year to this investment retirement account.

Many experts suggest that when a person already has two types of retirement accounts, such as a 401(k) and an IRA that they both be kept and then rolled from one to another as market and economic circumstances dictate. This may especially helpful because an IRA does dictate that withdrawals begin at age seventy and a half. At that point the IRA money could be rolled into the existing 401(k) and put of the withdrawals as long as desired. Whatever type of retirement account a person chooses, the most important thing is to have a consistent savings plan contributing to it monthly or weekly. If a person has questions about retirement plans, talking to a financial planner would be wise.