All You Need to Know About IRA and Where Can You Find the Best IRA
Retirement does not have to be about financial struggles if you take the right decisions at the right time. Retirement and IRA are two terms that often go hand in hand. There are many people who find the term IRA complicated and thus, we bring you the simplest definition.
What is an IRA Account?
The full form of IRA is Individual Retirement Account. It is an account that is opened up by individuals to save up for their retirement plan. In even more simpler words, it is a savings account for your retirement.
There are two types of IRAs. One is the traditional IRA and the other is the Roth IRA. The one major difference between both is the tax deduction. The traditional IRA is an investment for retirement without tax deduction. However, the tax is deducted when you withdraw the amount. On the other hand, the tax is deducted from the amount you invest in Roth IRA but no tax is deducted when you withdraw the amount later onwards. Amongst these two, Roth IRA is the most preferred type of IRA account.
What are the Benefits of Roth IRA?
Roth IRAs are flexible. There is a freeze period of five years but you can claim your contributions without penalty at any time (standard IRA withdrawal requires you to be at least 59 years old).
Unlike traditional IRAs, Roth IRAs do not demand a mandatory withdrawal of funds. They are transferable to heirs. You can keep contributing to the fund until the age of 70. If you do not utilize the fund during your retirement, you can gift it to your children or grandchildren for financial security.
How Can One Invest in the Best IRA Firms?
There are three ways to open up an IRA.
- Through a broker. This option helps those who are keen on investing in the stock markets to get higher gains.
- The next option is through mutual funds. Mutual funds again deal with trading in stock markets but there is a benefit of having a sound financial manager who handles the entire fund.
- Another option is your bank itself. Banks will provide you with a certificate deposit for your investment. The last but not the least is an automated investment service. Through this option, you can invest in your retirement scheme in the form of stocks and bond funds but there is a small fee such investment services charge to handle your investments.
What is the Annual Contribution Limit in an IRA?
As per 2018, the total contribution should not exceed $5,500 for people who are 49 and below years of age. For people who are aged 50 and above, the total limit is $6,500. This limit applies to both traditional and Roth IRAs. However, Roth IRAs are also subjected to additional clauses for limitations.
Can I Make Partial Contributions to my Roth IRA?
Individuals with higher income levels may find it difficult to make a partial contribution based on IRS guidelines. If one is married, is filing the IRA jointly and their Modified Adjusted Gross Income is less than $189,000, then the contribution limit is $5,500. If the MAGI is between and including $189,000 to $198,999, the contribution limit is less. If the MAGI is $199,000 or more, one will be ineligible for direct Roth IRA.
If one is married, is filing the IRA separately and their MAGI is less than $10,000, they will have a lesser contribution limit. For a MAGI of $10,000 or more, these individuals will be ineligible for direct Roth IRA.
If one is single and have a MAGI of less than $120,000, then the contribution limit is $5,500. If the MAGI is between 1,200,000 and $1,340,999, the contribution will be lesser. If the MAGI is more than $135,000, the single individual is ineligible for direct Roth IRA.
If a person over-invests in their IRA, the extra money that was invested will be taxed.
Best Investment Firms for IRA
- TD Ameritrade: It offers commission-free trades for a diverse portfolio of100 plus ETFs.
- Scottrade: It is another one of the best investment firms that do not charge a fee to open your IRA account
- Vanguard: It has a low-cost index mutual fund offers and ETFs. It covers a plethora of options in their asset allocation plan.
Fidelity Roth IRA
Reviews from clients show that this company has the best IRA accounts services. It does not charge an annual account fee and monthly investment amounts can be low. Fidelity Roth IRA offers a spectrum of investment choices where you can invest to gain maximum benefit. It also offers strategies, ideas, and tools to get you up and going. For more information, you can chat with a representative on their website.
While making financial decisions, stay informed and weigh all the options before settling for what suits you.