Individual retirement account, abbreviated as IRA is an investment aimed at offering tax advantages to its users. There are two types of IRAs, traditional and, which are almost similar to each other. As compared to regular investment accounts, IRAs have great benefits which would attract the investors. The primary reason why IRAs are preferred is that there are no taxes charged on the investments, and this is a win-win situation. It is a good idea to look at the pros and cons of a traditional IRA and then decide whether to invest in it or not.
Pros of investing in Traditional IRA
To begin with, the first significant advantage of a traditional IRA is the ease with which one can invest in it. Also, everybody can invest in traditional IRAs. There are no hard and fast eligibility criteria for investing in a traditional IRA. The most significant advantage of a traditional IRA is that the growth of investments is tax-free and tax is charged only at the time of withdrawal. It allows investors to make a profit and avoid the burden of taxes during retirement when the income is low. Another benefit of a traditional IRA is that it can be set up even if one has invested in other retirement plans. The prime attraction working in favor of a traditional IRA is the deduction of taxes. It is a financially sound idea to invest in a traditional IRA and enjoy tax-free benefits during retirements. We must mention here that however, everybody is eligible for investing in a traditional IRA, but not everybody is eligible for tax deductions. There is an eligibility criterion for tax deductions. Whether or not you will be charged tax depends on the factors like no. of retirement plans you have invested. Your marital status and income status of your spouse. Whether or not there is a provision for retirement benefits at your workplace, etc. Those who are eligible for tax deductions, the deduction in the traditional IRA contributions in the very year of the investment. There is no income limit to contribute to the IRA. You can invest tax-free while you are earning and withdraw the funds after retirement when the fee charged on withdrawal will be low. Another great thing about traditional IRAs is that the contributions are well protected from creditors, and there is no chance of bankruptcy. The traditional IRAs can be inherited by the mentioned beneficiaries, making this mode of investment a win-win situation.
Restrictions and limitations
There is a limitation on the contribution period that you can only contribute to IRAs only as long as you are not seventy and a half year old. After this age, you cannot, but you can withdraw the funds whenever you want. In case you wish to remove the funds before the limiting age, you will be subject to penalties. Also, after the limiting period, there are some compulsory withdrawals which cannot be neglected or else one has to pay the penalty.
Abide by all the rules and consider your needs well before investing in a traditional IRA to make the most of it.