We know that IRAs can provide a multitude of benefits - tax discounts, benchmarks to help you save for retirement, designated beneficiaries - but how can you get the most out of yours?
- Contribute early. Investing early can be more beneficial than investing more, thanks to compound interest. This is especially important with IRAs, which have limited contributions. If you don’t make contributions for 2018, you can never invest that money again.
- Contribute regularly. You don’t have to save up your contributions for Tax Day. If you make regular deposits, you have a greater chance of buying when the market is down (which means you’re buying when stocks are cheaper). This is a version of a technique known known as dollar-cost averaging.
- Avoid unnecessary withdrawals. IRAs offer exempt early withdrawals for some special needs like buying a home or medical expenses. These can be very useful, but as Americans will need to be increasingly self-reliant for retirement funds, it’s important to leave as much as you can to grow in an investment account. Make sure you have an emergency fund in place before getting started on your retirement account.
- Consider different account types. Knowing which IRA to pick is a complex question, but you can hold both a traditional and a Roth. These can be beneficial to contribute to at different times of your life, depending on your needs and tax situation. Just remember your yearly contribution limit stretches across both accounts.
- Make sure you’re not being overcharged. Passive investments, which attempt to follow the patterns of the market, are cheaper than ‘active investments’ and have vocal proponents like Warren Buffett. While you can’t know how any investment will do, lower fees could help your returns in the long run.
- Let your IRA build something better. While you use your IRA to prepare for your future, your IRA can also build a better future for everyone. You can invest in companies reducing their carbon footprint, or companies aiding and employing refugees, or a variety of other causes. Fortunately, there’s a lot of research that shows that investing responsibly won’t inherently negatively impact performance, meaning you don’t have to sacrifice what you believe in.
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