Yahoo Finance 7 Reasons to Invest in an IRA
Is an individual retirement account right for you?
When it comes to choosing a retirement account, you'll want to consider the tax consequences as well as whether the account provides accessibility to a wide range of securities, among other factors. U.S. News Smarter Investor bloggers offer seven reasons you should consider holding your investments in an IRA.
Your 401(k) menu offers limited investments.
"Employer-sponsored plans, like a 401(k), offer a limited number of investments, usually an array of mutual funds from several asset classes and sectors," writes Scott Holsopple, vice president at Focus Financial Partners. Your company's 401(k) offerings may suit your needs, or they may not cut it. If the latter, "financial institutions that offer IRAs often provide access to virtually any securities investment," Holsopple writes.
You maxed out your 401(k).
Maybe you've done a great job saving and investing, but you've hit the maximum allowable 401(k) contribution ($18,000 in 2015, or $24,000 if you're 50 or older). With an IRA, you can save even more for retirement -- up to $5,500 in 2015 or $6,500 for those 50 and older. But "make sure to treat your IRA as a part of your overall investment portfolio," writes Roger Wohlner, a fee-only financial advisor at Asset Strategy Consultants. So if you have multiple retirement accounts, consider your overall allocations to various asset classes.
You don't have access to a 401(k).
Just because your company doesn't offer a 401(k) plan doesn't mean you have to miss the opportunity to invest for retirement in a tax-advantaged account. IRAs are not tied to your employer, so you can participate regardless of whether your company offers a retirement plan.
You are self-employed.
If you're your own boss, you may want to hold your investments in an IRA. "Note there are a number of additional retirement plan options for the self-employed, including a Solo 401(k) and Simplified Employee Pension IRA, or SEP IRA," Wohlner writes. SEP IRAs should be opened and funded by the time you file your tax return, and that includes extensions. "Consult your tax professional regarding your specific situation," Wohlner advises.
You can hold nontraditional investments, such as real estate, in an IRA.
Through what's known as a self-directed IRA, investors can dabble in alternatives, such as real estate, private equity and precious metals. To do so, you'll need to find a custodian, since most big financial firms that act as IRA custodians stick to traditional investments. The use of IRAs for real estate investments is on the rise, experts say, but investors should be aware that self-directing investments for their IRA means they are responsible for their own investment decisions. "The IRA's custodian does nothing more than take direction from the investor," writes Joel Cone, a freelance business journalist and Smarter Investor blogger.
You may be able to crack your nest egg early.
Penalty-free, that is, and in certain circumstances. You typically have to pay a penalty if you tap your IRA before age 59½, but exceptions include a first-time home purchase, qualified education expenses and health insurance. Here are more specifics on how to avoid the early withdrawal penalty.
You can go the Roth route.
Contributions to Roth IRAs are made with after-tax dollars, which means you don't pay taxes when you withdraw the money. This is an especially appealing option if you think you will be in a higher tax bracket in retirement. "The importance of tax-free qualified distributions cannot be understated, and that makes the Roth IRA a very attractive vehicle for retirement savings," writes Kelly Campbell, founder of Campbell Wealth Management
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