IRA

“Should you put money away that you can’t access until you’re 59½? The answer, most emphatically, is yes! The younger you are when you start saving, the less you’ll have to save and the more you could have when you retire.”

- Lorayne Fiorillo, author of
Financial Fitness in 45 Days

An IRA could be viewed as a wealthy relative whose money you’ll inherit sometime in the future. Not exactly a bad way to think of it, as long as you realize that you must also contribute to the kitty, and that your relative isn’t going to die until you’re retired.

In more realistic terms, an individual retirement account (IRA) is a tax-advantaged way to accumulate retirement income over the long-term. There are several kinds to choose from:

Traditional IRA
Your money will grow tax deferred, and you may be eligible to deduct your annual contribution from your tax return.

Roth IRA
Contributions are not tax deductible under any circumstances, but withdrawals made for qualified reasons avoid taxes altogether.

SIMPLE IRA
Ideal for small business owners or the self-employed, this IRA allows both employer and employee contributions.

SEP IRA
Also ideal for small business owners or the self-employed, this IRA does not allow employee contributions, but employer contributions have much higher limits.

Traditional IRA
Roth IRA
SIMPLE IRA
SEP IRA

Investing Tidbit:

Even investing a small amount of money monthly can add up over the long haul. Take, for example, America’s obsession with gourmet coffee. It seems the national pastime these days is to start each morning with a $3.05 decaf mocha blend. What if, instead, you invested that $3.05 a day for the next 30 years? With an average annual return of 10%, you would accumulate an extra $212,378 for retirement.