> Retirement Planning > Things to Keep in Mind When Planning to Invest in a IRA Retirement Plan
An individual retirement arrangement is a key part of any investor's retirement planning. The term "individual retirement arrangement" is an umbrella term that describes multiple types of retirement plans which have different pros and cons that are very important to understand. This post details the most popular choices that investors have to choose between when selecting an IRA. It also informs readers about the advantages and disadvantages of each of these offerings. What is really important to consider is that because there is no perfect retirement plan for all investors, one must plan based on one's unique set of financial or life circumstances.
The most popular type of IRA is the traditional IRA plan. The so called "traditional" plan has one key benefit: up to a certain maximum amount, contributions are not taxed in the current tax year. Effectively, this means that any funds you put in the plan (up to the maximum contribution), will be deducted from your taxable income. Depositing money into a traditional IRA can reduce your taxes in the current tax year. Later, when funds are withdrawn, taxes must be paid on distributions.
The second most common type of individual retirement arrangement is the Roth IRA. The Roth IRA, named for the Senator of the same name, has one key difference with the traditional IRA. With the Roth IRA you pay taxes on your contributions in the current tax year and do not get to claim a deduction immediately on your taxes. However, later on down the road when you withdraw your contributions, you do not have to pay taxes on the distributions or on the money that the distributions earned.
If you believe your income will rise over time (and into retirement), it's often best to contribute towards a Roth IRA. However, if this isn't the case it might be a better choice for you to contribute to a traditional IRA. You must carefully evaluate your financial situation in order to make this determination.
Hopefully as a result of this article you have learned about the main benefits of both a Traditional and a Roth IRA. Understanding both of these plans is critical to make wise choices about retirement planning. The decision you make could have a significant impact on your financial well being in retirement, so choose wisely!
Learn more about IRA Maximum Contributions . Stop by Christopher Stanley's site where you can find out all about the IRA Contribution Limit and what it can mean for you.
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