What is an IRA

What is an IRA?

An IRA, or Individual Retirement Account, is a type of investment vehicle which is specifically made for the retirement of employed individuals. Those people who are allowed to make contributions to an IRA are those who are earning a taxable income through employment or through rendering their service to others. There are some eligibility rules that need to be met before a person can open an IRA, and these rules may vary depending on the type of IRA plan he plans to open.

So why open an IRA? Many people believe that in order for us to enjoy a comfortable and financially secured retirement, we need to save part of our income as soon as possible, and invest these savings to some investment accounts that can earn us profits which will serve as our income replacement later on. An IRA will surely help us attain this goal and achieve our financial plans for our future. Thus, most employed individuals who are earning taxable income are really recommended to open an IRA and start saving part of what they earn as early as they could.

Process in Opening an IRA

There are plenty of people who are wondering how to open an IRA. The best news is that the process in opening an IRA is very simple and easy. First, a person needs to decide which type of IRA plan he wants to open. Two of the most popular IRA plans available are the Roth IRA and Traditional IRA. These two differ in the way that they are taxed, as the Roth IRA contributions are taxed right away, while the Traditional IRA owners will be required to pay taxes only upon withdrawals or distribution. Choosing the one that would best work for a particular person is a wiser thing for him to do.

After deciding on which type of IRA plan to open, one needs to find an IRA provider. Of course, finding a provider that provides the best IRA rates possible is a wise thing to do. It is best to do a thorough research to find which are the best IRA companies available before finally deciding to open an account with a particular IRA provider or custodian. In addition, it is also essential to choose a provider that offers the lowest fees possible, as this is the only way to minimize investment costs.

Choosing an Investment Account

Because the IRA is an investment vehicle, the account holder can choose from a wide range of investment accounts available. He may also opt to choose several types of investments for his IRA plan, and this is a wiser thing to do as diversification of funds is the best way to create a better investment portfolio. It is best to choose the type of investments that do not just give the highest IRA rates, but also match the risk tolerance of the investors. Thus, the best IRA investments are the ones that offer the best IRA interest rates at a risk level that is acceptable to the investor.