What Exactly Is an IRA?

What is an IRA exactly? An individual retirement account allows you to build your financial future with tax benefits.

Planning your retirement can be stressful, but if you have an IRA, you probably feel a little more prepared. However, if you aren’t sure exactly how your IRA works and what to do with it, we’ve put together this IRA guide to help you plan your retirement with minimal stress. 

IRA definition

IRA stands for Individual Retirement Account. An IRA is basically an account that allows you to save for retirement with a tax advantage. The different types of IRAs give you a better understanding of how you will be taxed and what could be the best savings plan for you.

Types of IRAs

There are several different types of IRAs, but the main ones are the Traditional IRA, the Roth IRA, and the Self-directed IRA. Each one holds a different advantage, so depending on your retirement strategy, you may find that one type of IRA can give you exactly what you’re looking for. 

What is a Traditional IRA?

If you open a Traditional IRA, you can deduct the money you contribute to it on your tax return. Your contributions are also tax-deferred — you don’t pay taxes until you make withdrawals.

The main advantage of the Traditional IRA is that you may be in a lower tax bracket when you retire, making the tax you pay on your distribution (the scheduled payments during your retirement) considerably lower than the tax you’d pay in your current tax bracket. 

What is a Roth IRA?

With a Roth IRA, you pay tax before you contribute. This after-tax contribution allows you to grow your retirement savings tax-free and get your distributions tax-free. 

The advantage of this is obvious: When you decide to take your distributions, you don’t have to pay taxes. This means all of the money in your retirement account is yours, as long as you meet certain conditions, including meeting an aging requirement and reaching the age of 59 ½. 

What is a Self-Directed IRA?

A Self-Directed IRA allows you to hold assets such as physical gold. Investors typically roll over a portion of their retirement savings, such as an existing IRA, into a Self-Directed IRA to invest in gold or other precious metals. This type of Self-Directed IRA is often referred to as a Gold IRA.

What are the benefits of a Gold IRA?

You can set up a Gold IRA as either a Roth IRA or a Traditional IRA, but the benefits of a Gold IRA reach much further than a Roth or Traditional IRA. This is because you still get to enjoy the tax benefits of those IRAs, but you aren’t putting your entire savings into the stock and bond markets. Instead, you own your own physical precious metals that protect your retirement savings. Rolling a portion of your IRA or 401(k) into a Gold IRA allows you to achieve true diversification for your portfolio and gives you a strong hedge against inflation and stock market crises. 

You can read much more about the benefits of investing in physical gold here.

Take a look at this chart that shows the advantage of having a Gold IRA along with your existing retirement plan.

Diversifying your portfolio with precious metals is one of the best ways you can hedge against inflation and market crises. It also helps your portfolio perform better in the long run.

As you can see, those who chose to roll a portion of their 401(k) or IRA over into a Gold IRA 20 years ago have portfolios that grew more than twice as much as those who stuck to the typical 401(k)/IRA options. 

Learn more about how you can start investing in a Gold IRA now. Contact one of our Account Executives to start the process of rolling a portion of your IRA over into a Gold IRA today.

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