Financial Freedom Online : IRAs and financial freedom
Every time you sell an investment at a profit the government takes a piece of it. Or if your investments are paying income, the government still gets a piece of this income. It’s tough to build up money when someone else is always taking it away from you. But there is a way around these taxes. You can open an Individual Retirement Account. If you have investments that are inside an IRA, then any income or profits these investments produce is protected from taxes.
Forget about the IRA until you have made the full contributions allowable to your employer-sponsored plan. Your employer-sponsored plan is the better deal. IRAs are for people with no such employer plans or for those dedicated savers who are looking to sock even more away.
IRAs have many of the characteristics that employer-sponsored retirement plans have. Both are accounts that allow you to invest in a variety of investments like stocks, bonds and mutual funds. Both offer some sort of tax-favored investment growth in exchange for your promise to put your money in the account and leave it there until you hit age 59 and a half. Make no mistake though. IRAs are completely separate from your employer-sponsored financial freedom online plan.
Employer-sponsored plans were created because your company doesn’t want to take care of you when you retire. The IRA was created because the government doesn’t want to take care of you when you retire.
Basically, you trade the immediate use of your money for tax-free financial freedom online growth. The government, realizing the shortcomings of the Social Security System, created the IRA to let individuals save for themselves. But they figured if they let us take out money any time we wanted to, we’d never save for retirement, we’d simply spend it all on music and videos.
Here’s how the IRA works. You put cash into the account. You can’t put stocks and bonds into the account. All investments going into an IRA or coming out of an IRA must first be sold and converted to cash. Once your cash is inside the IRA then you can use that cash to buy investments. If you make any profit off those investments you are not taxed on those profits. And if you sell those investments for a loss you can’t deduct that either. The only catch is that the money must remain in the account until you reach age 59 and a half. Take it out early and you’ll pay a penalty.
There are two types of IRAs, the Traditional IRA and the Roth IRA. The selling point of the Traditional IRA is that your contributions to it may be tax deductible, based on your situation. But with a Traditional IRA, the earnings and deducted contributions you withdraw after age 59 and a half is taxed as regular financial freedom online income.
With a Roth IRA there are no tax deductions for putting money in, but when you withdraw the money after age 59 and a half you will pay no taxes on the money you withdraw. The difference becomes apparent when we throw in some numbers.
http://www.financial-freedom-education.com/Principles_of_Investing_Education.html
Together we shall win,
Adesegun Akitoye
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