Individual retirement accounts have helped millions of people save up their wealth without dealing with much risk for the past few decades. The amount of money help in these kinds of accounts recently reached the $5 trillion mark, according to the Investment Company Institute. This accounts for nearly a third of personal wealth in the country. While Standard IRAs offer a lot of benefits to middle-aged and older adults, they do come with a few limitations. You may need to consider a different type of IRA or investment account if you are seeking more freedom and flexibility.
Types of Investments
IRA accounts are a type of enhanced savings account. While you can make basic cash deposits from your income, you won’t automatically receive big returns by doing this. Investing in stocks, mutual funds and other opportunities is the key to growing your retirement fund as you age. However, most IRA custodians internally limit exactly what type of investments you can purchase with this kind of account. However, the IRS is more lax on the matter. The IRS; however, won’t allow investors to purchase collectibles for your savings, and precious metals are only allowed when in bullion or numismatic format. Using your IRA to purchase gold coins may be a solid way for you, for example, to diversify your IRA holdings.
Many other IRA custodians put further restrictions on investment opportunities. For example, if you are working with a standard account, you may only get to choose from a select set of mutual funds, stocks and bonds. You can expand your options to include real estate and other lucrative ideas by looking for a self-directed IRA. Investing your retirement into property can provide big returns, but also it also includes some important restrictions. The property must be a genuine investment, so using your IRA to buy out your vacation home will cause you to trigger a tax payment.
Waiting for Withdrawals
With many older workers choosing to stay in the workforce long past the usual retirement age, it can be easy to forget to start withdrawing from your IRA. Standard IRAs have limits on when you can start taking out money, but also they require you to start emptying the account by a certain age as well. Have a look at our post on Required Minimum Distributions (RMDs). You will be subject to penalty fees if you don’t start removing money the year you turn 70 and a half. The IRS has a complex chart to help you determine how much you have to remove each year afterward to avoid fees. If you need help, then contact our office and we will help you calculate your RMD.