One of the simplest "do's" on the road to financial freedom is fully funding an IRA-an individual retirement account.
For most people, the advantages of an IRA are topped only by those of a 401(k) plan, which enables your contributions to lower your taxable income and may be "matched" in part by the employer.
For those who have no 401(k) or are already investing the maximum, the next best tool for retirement savings may be an IRA-and you may be glad if you take advantage of it.
Why? A dollar invested through an IRA may return more money over time than an ordinary dollar invested in the identical underlying security.
The IRA dollar is leveraged by its tax-deferred status and enables the investor to keep more money growing and multiplying over time.
Investment gains made in non-retirement accounts are taxed, diminishing the total amount available to grow and compound.
Keep in mind, IRA distributions made before the age of 59-1/2 may be subject to a 10 percent early withdrawal penalty.
While there are different advantages and stipulations for a Traditional IRA vs. a Roth IRA, both offer investors a way to save more with less. Consider opening and fully funding an IRA a prerequisite for your retirement.
Now, a couple questions remain: How do you get the most out of your IRA? What do you invest in? Who should manage your account?
For many people, investing in mutual funds is an easy and practical way to fund an IRA.
Mutual funds offer the benefits of a diversity of holdings and professional money management.
Whether you prefer to invest in stocks or bonds, the technology sector or income-generating T-bills, you'll find an abundance of choices within mutual funds that, for the most part, carry less risk than investing in just one or two companies.
Perhaps best of all, mutual funds leave the day-to-day decision-making up to the fund managers, so that you are free to think about the rest of your life.
For this reason alone, it can be crucial to weigh carefully the quality of the money management firm and the fund manager when selecting a fund or a group of funds for your IRA. You want to be sure that the fund manager is experienced and that the firm has a solid track record going back at least 10 years.
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