IRA and retirement planning are essential for protecting our financial futures. Not all Palm Springs employees have access to an employer-provided 401(k) retirement plan. Even those with access to a 401(k) do not enjoy a guarantee of payouts. Social Security benefits will not be enough to live on, which means that we all need to be smart about our savings and retirement planning.
Investing in an individual Retirement Account (IRA) is one way to ensure that you have enough funds to last throughout your retirement. There are several types of legally recognized IRAs, including traditional IRA’s, Roth IRA’s, SEP IRA’s, and Simple IRA’s. IRA’s offer Palm Springs residents who are engaged in retirement planning a way to invest money with tax advantages. At Heritage Legal, PC, our estate planning team can help you invest in the types of retirement accounts that will help you jumpstart your retirement savings.
The Best Time for Retirement Planning Is Now
At Heritage Legal, PC, we have spoken with many clients who are afraid that they do not have enough time to plan for retirement. The best time to start planning for retirement is now, however. Even if you do not already have a retirement plan in place, you can begin to set realistic goals for saving enough money to retire. The first step in retirement planning is to determine how much money you’ll need to retire.
At Heritage Legal, PC, we understand that retirement planning can be incredibly overwhelming. When we don't know how to start saving, it's easy not to start saving at all. Founding attorney Christopher Heritage can help you determine how much money you'll need to save for retirement.
How Can an IRA Retirement Account Benefit You?
Investing in an IRA is one of the best ways to plan for your retirement. The earlier you start contributing to your IRA, the more opportunity you’ll have to build wealth for your retirement. IRA accounts are some of the most beneficial retirement accounts from a tax perspective.
Eligible taxpayers are allowed to contribute as much as $6,000 per year or the taxable compensation for the year (whichever is less) to a Roth IRA or traditional IRA. If you’ve reached the age of 50, you can contribute $7,000 per year. The best part of investing in an IRA is watching your contribution grow over time. When a 25-year-old invests the maximum amount into an IRA in 2020, it could grow to be nearly $20,000 in 15 years.
The Earlier You Begin Investing in Your IRA, the Better
The age you begin investing in your IRA will determine how much your IRA will grow. It is never too late to start investing in an IRA, however. IRAs provide their owners with the benefit of compound growth. Your initial investment will grow over time. The initial investment becomes reinvested and begins to make its return.
Another benefit of using an IRA is that you do not need to meet the full contribution limit. Many young Palm Spring residents may not be able to contribute the total $6,000 into their accounts. They can choose to contribute a set amount of their choosing weekly, biweekly, or monthly using automatic payments.
IRA’s Come with Significant Tax Breaks
IRA retirement accounts offer investors significant tax benefits. Traditional IRA’s and Roth IRA’s both offer tax benefits, but they each have different tax advantages and rules for eligibility. When you contribute to a traditional IRA, the contribution is tax-deductible for the year in which you contributed the money. You can contribute up to the annual IRA limit so long as you can claim enough income to cover the amount you contribute.
When neither you or your spouse have access to a workplace retirement plan, you can deduct the entire amount you contributed, regardless of your income. If you do have access to a workplace retirement savings account, you may be able to deduct your IRA contributions, depending on your income level. Your IRA will earn money, and you will not have to pay taxes on that income until you withdraw money from your IRA, ideally in retirement.
Roth IRA’s offer investors the ability to make contributions with after-tax money. In other words, you will pay taxes on your contributions to the IRA the year in which you make the contributions. The earnings on your investment will grow tax-free. The primary benefit of using a Roth IRA is that you will not have to pay taxes on the money you withdraw from your Roth IRA during retirement. Those eligible can contribute to a Roth IRA or a traditional IRA, or both types of IRA’s. Their total contributions must remain under the annual limit.
Contact Our Palm Springs Retirement Planning and IRA Attorney
The eligibility requirements and tax implications of investing in IRA’s can be challenging to understand. Heritage Legal, PC can help you take advantage of the tax benefits of IRA’s at every stage of retirement planning. Contact our Palm Springs estate planning law firm as soon as possible to schedule your initial consultation. |