Max Out Your IRA before Making Any Other Investment
We get it. When you work hard day in and day out, and you only have so much disposable income floating around, it’s hard not to use it to reward yourself for all your hard work. After all, the government takes its fair share of taxes and most of what’s left can be expected to go to buzz-killing bills. With the tiny portion you have left after all is said and done and all your necessities have been taken care of, the temptation to splurge on fun and entertainment, diversions, and other fun stuff can be almost too powerful to resist.
But pump those brakes, kid, because we’re about to tell you something you need to know but probably don’t want to hear: The amount you contribute to your retirement accounts right now makes a huge difference in how well you’ll be living down the road. If you’re young, your biggest asset is time, which is why you should open an IRA as soon as you have enough money to do so, and max it out before making any other investment. An IRA is an account with advantages on many levels, and the more you invest in your IRA, the more your funds can appreciate over the coming years. Invest smartly now or a car title loan may be in your future.
Advantages of IRAs
Though it’s not exactly fair, saving and planning for your retirement has become the sole responsibility of Americans. Nowadays, it’s every man for himself as far as government programs are concerned. Unlike in the past, Social Security won’t be there to save us all when we hit retirement age, so it’s more important than ever for you to have a plan in place that guarantees a cushion that will provide you with a comfortable retirement fund equipped with all the money necessary to handle regular expense as well as unexpected bumps in the road.
That’s where IRAs come in. IRAs are retirement funds designed to give the average Joe or Jane an opportunity to invest their cash into an account specifically for their Golden Years. It’s recommended that if you’re young – in your 20s or 30s – you should consider higher-risk investments since you’ve got more time to bounce back than someone who’s 48.Additionally, with a greater rate of appreciation than a regular savings account, you could easily reach six figures or more if you start investing in an IRA while you’re in your 20s.
You can choose a traditional IRA, which is tax-deductible (but will be taxed upon withdrawal), or a Roth IRA, which is post-tax income that will not be taxed once you start using it after age 59 ½.
Additionally, an IRA account provides some leniency in that it allows you to make penalty-free withdrawals up to a certain amount under certain circumstances, like purchasing a home, paying medical expenses, covering death or disability, or continuing higher education.
We realize the term “max out” may sound a little bit scary. However, there is a limit in place for just how much you can contribute to an IRA account. The maximum amount you can contribute to an IRA is $5,500 annually. You don’t have to contribute that much, but you should try to get as close as you can in order to get the most bang for your buck.
You may not have a whole lot of money, and retirement may feel like it’s ages away. With decades to go and other things you want to spend your hard-earned cash on, like a home, socking away so much cash for an investment that’s so far away can feel cumbersome. But the years fly by faster than you realize, and before you know it you’ll be tapping into those funds and thanking your past self for doing your due diligence.