Retirement accounts are not created equal, and that’s really annoying and wildly unfair.
In the USA, for some unknown reason, the retirement accounts with the biggest contribution amounts and some of the biggest tax benefits, are tied to employment. (I say unknown reason, but the US has a very strong belief that a lot of basic rights, like healthcare, should be tied to employment.)
There is a retirement account though, that holds a special place in my heart, and is a perfect place to begin your investing journey. Let us turn our attention to the wonderful, the democratic, the powerful IRA.
IRA stands for individual retirement account.
Why you Should Open an IRA
They are- you guessed it- retirement accounts for individuals! Anyone 18+ in the US with ‘earned income’ can open an IRA. You do not have to have a full time job to open one. You do not have to have a W2 job to open one.
It is my favorite retirement account for exactly these reasons! IRAs are tools that are available to most Americans. Their main purpose is helping you save that sweet sweet retirement money, but they have a long list of other rather nifty uses that make my money nerd heart sing.
If you do have a workplace retirement account you can ALSO open an IRA. Then, you can super charged your retirement investing. If you’re interested in financial independence you need to save as much for retirement as possible and IRAs can help you do that.
Types of IRAs
There are two types of IRAs available for 18+ folks with earned income to open.
This is a post-tax account, which means you make contributions with money that has already been taxed. An easy way to think of it is you pay taxes the year you make your contribution and then you NEVER HAVE TO PAY TAXES on this account again.
Roth IRA’s do have an income limit. That means if you make over a certain amount of money a year, you can’t open this account. Check the limits on the IRS website– they change every few years to account for inflation.
This is a pre-tax account. You make contributions with money that hasn’t been taxed yet, which means when you withdraw the money in retirement it WILL be taxed. The government always gets paid!
There’s no income limit on a traditional IRA so if you make $1,000,000,000 a year you can utilize one. There is something called an RMD- a required minimum distribution. Starting at age 72 you HAVE to start taking money out of this account. That’s because the money hasn’t been taxed yet, and remember- the government always get paid.
So, we cover these accounts in more depth in our investing 101 workshop “How to Not Die Broke“!
How Much Money You Can Put in an IRA
As of 2024 you can put $7,000 a year into your IRA, or $8,000 if you are 50+.
If you have two IRAs that $7,000 is across both. Meaning you can out $3,500 into your Roth and $3,500 into your Traditional because that totals $7,000. You can’t put $7,000 into each because that totals $14,000.
Also, if you are 50+, you get to put an extra $1000 a year into your IRA. This is the government letting you play catch up, so it doesn’t have to take care of your punk ass when you retire.
What You Can Invest In
I mean what CAN’T you invest in?? ETF’s, index funds, mutual funds, bond funds, options, the list goes on and on!
What exactly is available will depend on your specific brokerage but an IRA is a great vehicle for a lot of investment options.
Where Do I Get This IRA
The two brokerages I like best are Vanguard.
I won’t lie to you: Vanguard’s user experience is BAD. The website looks like your Grampa designed it in 1987.
But their fees are super low, they manage billions in assets, they basically invented the index fund and their customer service is amazing.
I simply love the IRA, and my own IRA accounts have been a huge part of my investing journey.
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