With close to 65% of Americans failing at saving for retirement, perhaps one of the reasons why is that they don’t understand the investment choices that are available. For example, just the other day I had a young investor call me and ask, “Justin, what is an IRA?” Maybe you’ve wondered that very same thing.

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DISCLAIMER:
Host Justin Goodbread, Certified Financial Planner, Certified Exit Planning Advisor, Certified Value Growth Advisor. He is a serial entrepreneur, author, speaker, educator, Investopedia Top 100 advisor, and business strategist with over 20 years of experience. Justin owns Heritage Investors LLC, a registered investment adviser with the State of Tennessee. Heritage Investors only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. This material is for general information only and is not intended to provide specific advice or recommendations for individuals. To determine what is appropriate for you, please consult a qualified professional. The Financially Simple podcast provides information, guidance, and support to Small Businesses in the United States….(read more)

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An Individual retirement account, commonly known as an IRA, is a type of investment account specifically designed to help individuals save for retirement. IRAs offer certain tax advantages that make them a popular choice for retirement savings.

There are several types of IRAs, including the Traditional IRA, Roth IRA, and SEP IRA. Each type of IRA has its own rules and benefits, so it’s important to understand the differences before choosing the right one for your retirement savings goals.

A Traditional IRA allows individuals to contribute money to their account on a pre-tax basis, meaning that the contributions are tax-deductible in the year they are made. This can help reduce taxable income and potentially lower your tax bill. The money in a Traditional IRA grows tax-deferred, meaning you won’t pay taxes on any gains until you withdraw the funds in retirement.

On the other hand, a Roth IRA works in the opposite way. Contributions to a Roth IRA are made with after-tax dollars, so they are not tax-deductible. However, the money in a Roth IRA grows tax-free, and withdrawals in retirement are also tax-free. This can be advantageous for individuals who expect to be in a higher tax bracket in retirement or who want to have more flexibility with their retirement income.

A SEP IRA, or Simplified Employee Pension IRA, is designed for self-employed individuals or small business owners. Contributions to a SEP IRA are tax-deductible and the money grows tax-deferred. Like a Traditional IRA, withdrawals in retirement are taxed as income.

One of the key benefits of an IRA is the ability to invest in a wide range of options, such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs). This allows individuals to customize their investment strategy based on their risk tolerance and retirement goals.

It’s important to note that there are contribution limits and eligibility requirements for IRAs, so it’s a good idea to consult with a financial advisor or tax professional to determine the best IRA option for your financial situation. By starting to save for retirement in an IRA, individuals can take advantage of the tax benefits and potentially grow their nest egg for a secure and comfortable retirement.