Posts Tagged ‘Individual Retirement Account’
Social Security is a government fund established to ensure that all Americans get enough funding up until the day they pass away. Ideally, when you get old, Social Security pension should be enough to sustain you through your senior years. Depending on the length of your service to the country, you will get a certain amount monthly. The funds are drawn from contributions of current American workers.
Retirees need this badly since most of them have no other source of income anymore. But the Social Security fund is facing a crisis today. They are projecting a depletion of funds within a few decades. This is because of the Baby Boomer generation hitting their retiring age. Soon, there will be more pensioners than contributors. By the time the working youth today get to their retiring age, Social Security would be no more.
Because of this crisis, it is very important to establish your own retirement plan. You can no longer rely on the government for retirement fund so you have to make your own move. An individual retirement account or IRA is a pension plan you can establish yourself. These are account offered by various banks and financial institutions across the country. You can contribute money regularly to your IRA and save up until the day you retire. An IRA is very similar to a 401k. The only difference is that you have more freedom with an IRA. 401ks are employer-specific. You cannot have just one 401k for different employers. But with an IRA, regardless of how many employers you have, all you need is one.
When the time comes to withdraw the pensions, it is up to you how you would want to receive the funds. You can set it up as a regular pension or you can take it out in a lump sum. This is called an IRA distribution. Depending on your account, you IRA distribution may vary. If you have a traditional IRA, you’ll get taxed for your withdrawal (since the funds came in untaxed). You have a Roth IRA, your IRA distribution won’t be taxed anymore as Roth IRAs tax you before investing the money. For traditional IRAs, you’ll be subject to two taxes: The 20% Federal Tax; and your local State Tax.
Overall, an IRA is a great investment for your future. You’ll retire knowing that you’ll be secure for the rest of your life.