Different Types of Individual Retirement Accounts— Which One's for You?
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As our golden years approach and we grow older and weaker, our expenses also begin mounting; most of these are medical expenses. According to a study by Harvard, per person medical care expenses for a senior citizen are roughly $18000 per year, whereas the same for a child are around $3000. This shows that our medical expenses increase exponentially with age.
Instead of relying on debt and selling off your assets in the future to pay for medical bills, it’s essential that you start saving today to be prepared for them!
One way you can pay your future medical bills with ease is by investing in an individual retirement account (IRA) now. Let’s take a look at various IRA options out there.
This is the oldest type of an IRA has and has existed for quite some time now. It’s an account that’s especially opened for retirement benefits where you deposit cash at regular intervals. The funds are only taxed after you withdraw an amount years, or maybe even decades later. This way, your dividends and capital gains are protected from tax deductions.
However, if you opt for a premature withdrawal, i.e., before the American retirement age, a tax penalty of 10% is charged, other than routine taxes. This is to make sure you only tap into your nest egg when you need the funds the most.
There is a limit to how much of your monthly income you can deposit, however.
The Simplified Employee Pension Individual Retirement Account (SEP-IRA) is an option for self-employed or small businesses which have a small number of employees. You can even open up a SEP-IRA if you have a constant stream of freelance income.
This one is similar to a traditional IRA, except for the fact that the set limit to deposit cash is higher than that in a traditional IRA. As of 2016, business owners could deposit as much as 25% of their monthly income, which is a lot more compared to a traditional IRA. If you’re a married couple who own and operate the same business, you can use the same SEP-IRA to deposit money together.
If you’re an employer who wishes to deposit money in their SEP-IRA, it’s mandatory on you to deposit some amount in the account of every eligible employee. The biggest advantage is that if your company isn’t having a financially sound year, you can choose not to deposit that year. Similarly, if you made more than your intended profit, you can choose to deposit more. The limit isn’t fixed.
Precious metals IRA
This is the most important one for today’s times. The biggest benefit of a precious metal IRA is that you don’t necessarily have to open up a new IRA in order to store precious metals. You can get any investment dealer to roll-over your existing IRA into a precious metal IRA.
You can store gold, silver, platinum, or palladium. The metals can be stored in the form of coins, bullions, or bars. The advantage is that a precious metal IRA has all other kinds is a precious metal’s ability to retain value in times of inflation and other economic upheavals.
Your gold investment company will open up your account, help you buy gold and silver coins online, and will store them in insured vault storage. A precious metal IRA enjoys the same tax deferment benefits as a traditional IRA.