From John Hartley, special to OurTimeNow retirement

Your individual retirement account could be your best investment

Because you get the benefit of tax free investments, an individual retirement account could easily outperform your other investments. Add to that the fact that you will be investing over a long period, so you will get the benefit of compound interest, and you will see the benefits of an individual retirement account.

There are two important points about this form of investment:
1.You need to invest long term - that is, start when you are young, preferably under 30. Don’t leave it till you are 55 to start an individual retirement account.
2.You must invest in a conservatively managed fund so you don’t wake up one morning and find your fund has halved in value. This has happened.

11 types of individual retirement accounts

There are 11 types of individual retirement accounts, but most of these are for different groups, such as corporations. For individuals there is either:

The standard individual retirement account, which is invested through a bank or broker, and can be invested in various securities;

Or the
Individual Retirement Annuity, which is invested through a life insurance company and provides an annuity - an annual income - at the end of the term.

For income up to $160,000 a year the individual retirement account is a good investment

An individual retirement account is the way to save for your retirement if you have an earned income which is less than $160,000 - over that level you don’t get any tax-free investments, so a Roth individual retirement account is usually better, The thing is that although you don’t pay tax on money you put into the individual retirement account - up to fairly low limits - you do get taxed on the proceeds. Whenever you withdraw funds, it counts as income, which is why the money from your individual retirement account is taxed.

It is worth remembering that there is an advantage to putting money into an individual retirement account even if you don’t get the tax deduction. You see, say you put $4,000 in without a tax deduction, you will be able to withdraw that and the interest, etc that has been added tax free.

So the standard individual retirement account has some benefits. This one is particularly useful if you start off on a lower income, and put quite a bit into your individual retirement account, and then go over the $160,000 level.

You can put $4,000-$5,000 a year into the account

You are allowed to put up to $4,000 into your individual retirement account in 2006 and 2007, but $5,000 in 2008. If you are over 50, you may add $1,000 ‘catchup’ amount. So you can see that an individual retirement account will not give you a good income unless you start squirreling money into at a young age.

If you take the money out before you are 59.5 years old, you will pay an extra 10%25 tax on it! Not a good idea - it could take a hefty chunk of your profits with it. However, there are some exceptions to this rule, such as if you become disabled.

Also, you must start withdrawing funds whenyou reach 70.5 years, starting the following April. Do pay attention to the rules to get the best from an individual retirement account.

Disclaimer

The information on this web site does not constitute an offer in any way. It gives general information, but is not financial advice. The aim is to help you decide what to do about your retirement plan, and the importance of saving for retirement. You should consult a retirement planning adviser with a proven record before setting up a retirement plan.

Rex Truman is not retied but should be - instead he gives information at http://www,retirewhenulike.com to help people save enough so they can enjoy retirement, ideally with an interesting job where they are in control

Retirement Accounts