Many people do not realize that having an individual retirement account (IRA) could mean the difference between struggling to get by and enjoying financial freedom. It is not uncommon to hear nowadays that many Americans have little to no savings and many families are uncertain about their financial future. The good news is IRAs offer a smart solution to build wealth faster and help you score tax benefits as well. If you are serious about savings and making the most out of your money to plan for the future and build wealth faster, you cannot go wrong by opening an IRA account. You do not have to be an expert to make these simple investments and you will not only grow your savings more quickly but also make huge steps towards achieving financial freedom. Here are four ways IRAs offer greater wealth more quickly:
Tax-Free Money in the Future
When you invest in a Roth IRA, after-tax dollars are used to make your contributions and later on down the line your distributions will also be tax-free. This type of investment account is unlike a traditional IRA where most people make contributions now which are tax-deductible and then also have to pay taxes later when they decide to receive distributions. To help build wealth faster using tax-free money, it is a good idea to have several accounts different tax treatments, and this also allows you to have a more diversified IRA portfolio. This way, you will have money reserved that is both pre-tax and post-tax, and then you will be able to make more profitable withdrawal options depending on the future tax rate.
Best Savings Option
Along with any company-sponsored retirement plan, Social Security benefits, and a proper retirement plan, an IRA is one of the best savings options especially for those who are worried about being behind when it comes to saving for retirement. In addition to what you are saving now and the amount of money you will need to live comfortably during retirement, an IRA will help fill the gap. Many banks and other financial institutions that offer savings accounts often levy fees on savings plans. With an IRA you can choose where to invest your money to avoid paying additional fees to help grow your savings faster.
A Safety Net for Emergencies
You can never predict when emergencies will happen such as medical bills, a car repair, or some other circumstance that requires a significant amount of money. When you invest in an IRA, it can help you at just the right time because you will have more money at your disposal. With a traditional IRA, you can withdraw your contributions without any penalty starting at age 59 ½. A Roth IRA allows you to withdraw your contributions at any time.
Helps Keep Fixed Costs Low
To grow your savings more quickly, it is essential that you know your monthly costs such as housing, car payments, utility bills, and so on. Once you determine your monthly fixed costs, you can find ways to save more money and put those contributions into your IRA account. If you happen to get a raise on your job or earn an additional side income, you can keep your fix cost the same while contributing these additional earnings to your IRA account to help grow your savings exponentially.