How IRA’s Play A Role In Your Path To Millionaire Status
I recently gave a brief summary of the Individual Retirement Accounts, also known as IRA’s and explained that to become a millionaire, you must learn to invest your money and watch it grow. One of the best tools to help you become disciplined at doing so is an IRA.
The two IRA’s that most will encounter in their lifetime are the Traditional IRA, and the Roth IRA. These two accounts have different tax consequences and both have advantages that will encourage you to invest, step back, and allow your investments to grow until you are at or near retirement. The monies will help you live your golden years with more monetary security and you will be able to enjoy some of the finer things that you have earned.
The Traditional IRA allows you to invest and your money will grow tax deferred. What this means is that as your investment grows, you do not have to pay federal taxes on this growth until you start to withdrawal the funds. To encourage you to keep the funds growing, the federal government penalizes you a 10% fee is you take monies out of your account prior to age 59 ½, plus you then have to pay the percentage of taxes owed on this income. The penalty helps to encourage individuals from removing funds from the IRA, which in return allows the funds to grow for a substantial amount of time. Depending on your income, some individuals may not be allowed to contribute to a traditional IRA with tax deferred dollars. You must first consult a professional such as a financial advisor, or bank to get the updated details.
A simple example of contributing to a Traditional IRA and the advantage of doing so is if you wanted to contribute $1000.00 to the IRA account, if you qualify to do so, you would be allowed to deduct $1000.00 from your total income when paying federal taxes. If you fall into the 25% tax bracket, you would be saving $250.00 on your taxes at the end of the year. This allows you to put more money away at the very beginning of this investing. Once the money starts to grow, you do not pay taxes on the earnings until you start to withdrawal the funds, which again have great tax advantages.
A Roth IRA takes monies that you have already paid taxes on, allow you to invest this money with no federal tax consequences, and no penalties as long as you leave the money invested until the age of 59 ½ years of age. You can watch your money grow, and at your retirement, you can take the money out tax-free. What a great opportunity!
The Federal government also allows for some withdrawal of this investment with no penalty. After a set number of years, you can take out your original taxed investment that you have already paid taxes on, without penalty. There are rules and regulations involved in the early withdrawal, and you would have to get the advise of your tax accountant or financial advisor.
If you want to be a millionaire, you want to start investing in IRA’s. Your money will grow much faster, and it is a safe way to get started on the road to financial success!