For an increasing number of people who are nearing the age of retirement, it is simply not enough that they have secured a modest pension for their needs in their later years. More and more people are looking beyond this modest set of benefits and considering retirement investment options that will greatly increase their chances of realizing more benefits from their retirement fund contributions. It is precisely for this group of people that IRAs or Individual Retirement Accounts are an ideal solution to their projected needs.

 

Individual Retirement Accounts come in two forms: Traditional IRAs and Roth IRAs. While there are a few differences between both these types of IRAs, they will both have the advantage of allowing your retirement fund contributions to grow considerably up until the moment that you retire. What’s more, these contributions will have the additional benefit of being tax deferred.

 

There are a wide variety of investment options to choose from with either Traditional IRAs or Roth IRAs such as stocks, bonds, mutual funds, and certificates of deposit (CDs).

 

We mentioned earlier that there are clear differences between both types of IRAs. The most significant difference is that with traditional IRAs, your contributions are tax-deductible, subject to some restrictions. If you wait until you retire before you withdraw from this fund, you will only be charged the tax appropriate to regular income. Any sooner than this however, and you will have to pay not only the withdrawal tax but also a 10% penalty besides. The traditional IRA is the ideal choice for you if do not intend to withdraw from your retirement fund before the age of 59.5 years and you expect that the taxes you will be paying upon retirement will be considerably lower than the taxes that you are paying now.

 

With Roth IRAs, your contributions are not tax deductible but the advantage is that upon withdrawal after the age of 59.5 you will not be obliged to pay any more taxes. Furthermore, you may withdraw your contributions even before you reach the cut off age without incurring any penalties. If you anticipate a need to withdraw your money before 59.5 years of age or if you expect to pay more taxes upon retirement than you are paying now, the Roth IRA is better suited to you.

 

It would be worthwhile for you to consider the additional potential for earning that comes with contributing towards a long-term investment plan as early as possible.