The IRA is a popular investment vehicle and trends show it’s only going to continue to grow in popularity. However, people don’t know many things about the IRA, and this lack of knowledge impacts on their investment decisions.
Don’t fall into this group. It could easily cost you a lot of money in the long-term. Make the right decisions today by looking into our 11 secrets of the investment IRA.
1. You Can Have Multiple IRAs
There are many ways you can have multiple IRAs. For example, you may have inherited one. When you have multiple IRAs there’s nothing preventing you from contributing to multiple IRAs. However, beware that your maximum contribution limit remains the same overall.
2. Cash Payments Only
Believe it, all regular contributions to an IRA must be made in cold hard cash. There are no signs of this changing anytime soon, though.
3. Losses Equals Tax Deduction
You can’t offset gains with losses when dealing with IRAs, but if you have lost money collectively, you can gain a tax deduction. This is the beauty of the tax deferrals brought by the IRA concept.
4. Distributions Limit
After you pass 70.5 years, you have to take a minimum distribution each year. There’s nothing preventing you from only taking an amount from a single IRA, or taking the distribution collectively from a number of IRAs however.
5. Beneficiaries Equality
Only your spouse can fully benefit from an account you leave to him or her. Non-spousal beneficiaries can’t. They have to liquidate the account completely within five years after the original owner’s death. This means that you have to think carefully when you decide upon the fate of your IRA.
6. Give Them a Reason
Whenever you transfer a financial account from one custodian to another, the IRS wants to know about it. Not so with the IRA. You’re free to transfer your IRA or perform a rollover, without notifying the IRS. This makes the process far smoother and more convenient.
7. 1040 Schedule A Deductions
Did you know that you can deduct any IRA-related fees from your taxes?
This is the 1040 Schedule A deduction. You can use it to offset any losses from admin fees, along with any buying or selling fees. This is vital because the vast majority of finance companies charge for everything.
8. IRAs and Annuities
Your IRA can act as an annuity. Annuities are such as to provide you with a solid retirement income for the rest of your life. You can use an IRA in exactly the same way. Talk to your financial advisor about how to setup your IRA in this way.
9. Managed Accounts
IRAs don’t always have to stay under your total control. You have the option of turning it into a brokerage account and handing it over to a financial expert.
Managed accounts with an IRA presents the same risks as a standard managed account, however. Choose the broker carefully.
10. Limited Investment Types
It’s well-known that the IRS has strict limits on exactly what an IRA can be used to invest in.
What you may not have known is that your financial institution can further limit your investment options. They’re well within their rights to do this and there’s little you can do about it.
We recommend always questioning your financial institution about allowed investment types before opening an IRA with them.
11. Age is No Barrier
Anyone can open up an IRA account, including minors. You don’t need to have started full-time work to start thinking of your future. Parents are able to setup these accounts on behalf of their offspring.
IRAs Remain an Extremely Malleable Investment Tool
The simple conclusion is that IRAs are malleable and easy to work with. These reasons make them so ideal for investors who’re looking to prepare for the future without taking too many risks.
The rule of thumb to making an IRA work is to do your research your options first. Not all financial organizations were made equal. If you do your research and are clear about your goals, there’s no reason why an IRA can’t become a central part of your investment portfolio.
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He brings over 30 years of diverse experience as a financial advisor. Rick takes great pride in giving honest and very experienced advice. Rick can readily converse with business owners and people looking to take control of their retirement accounts.