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IRA Rules

Are you thinking about starting an IRA, but you’re a little intimidated by all the IRA rules? If so, you need not be confused any longer. These rules are wordy and bewildering, but they boil down to a few key principles that can mean a lot of earnings for you and your retirement.

What is an IRA? An IRA is a special account set aside for your retirement. This account has special IRA rules that have two separate sets of tax advantages. First, the money you contribute to your retirement account comes out of your account before taxes. Second, the money in your account grows without any taxes imposed on the earnings, allowing the money that would have gone to taxes to instead create more money for you. This double deferment makes an IRA one of the preferred methods of retirement savings.

However, there is another set of rules regarding taxes. Because the money is basically invested tax free, the IRS puts an annual cap on the amount you can contribute to your IRA account. There is also an additional ‘catch up’ amount allowed for people over the age of fifty.

Most IRA's have rules that require you to have a set amount of money deposited into your account every month. Although these rules seem arbitrary, they will help your account grow even faster. First, when these contributions are automatically withdrawn from your pay check, you will have no trouble with remember to pay the bill. Most people find that they adjust their lifestyle slightly and no longer even feel the lost money. Also, dollar cost averaging, one of the stock markets most tried and true strategies, involves putting away a set amount every month, regardless of the economic climate. Because your money will naturally buy more investments when the price is relatively low, you will be buying more stocks at favorable prices than at higher ones. If your IRA deducts the same amount out of every paycheck, you will be doing this systematic investing without any effort.

Another set of rules deals with early withdrawal. IRA money is supposed to be left in your account until you reach retirement. If you take it out early, you will have to pay a ten percent penalty, a ten percent tax, and additional income taxes on any money the account earned. This can come to almost half of the account, so you should avoid withdrawing money if at all possible.

IRA rules are very simple when you condense them into a few basic principles, and they actually make it easier to invest for the long term. This buffers your money from momentary fluctuations of the market and enables you to take more risk with your investment and increase your returns. With Social Security quickly becoming a thing of the past, the only way to have a comfortable retirement is to plan for it and save for it yourself. Having an IRA retirement account and dealing with IRA rules is an essential part of this process.

IRA Rules
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