The Necessity of Individual Retirement Accounts

retirement (Photo credit: 401(K) 2013)

Even if you have quite a long time before you retire, it's never too early to start thinking about a plan. When that day comes, you want to make sure you have enough money saved up and that you are able to live comfortably. What are the benefits if individual retirement accounts, which are sometimes referred to as IRAs?

An Individual Plan

Not everyone has the same needs, and you want to ensure that your personal ones are met. By developing an IRA, you can work to craft a plan that makes sense for you and addresses your personal and financial needs. When you take the time to sit down with a certified financial planner and come up with an individual retirement account, you are being smart about your future. Specifically, you will be able to work toward attaining a specific amount of money to have reserved for you when you retire. In society at large, these accounts allow people to develop a greater sense of personal responsibility.

Personal Responsibility

Let's explore this concept of personal responsibility a little bit more. It is clear from the state of the economy that many people and government entities are not great with money. Therefore, it's also smart to take some steps to amplify your knowledge and to learn more about where your money goes and why it's important. Taking the step to have an IRA, regardless of the specific type, means that you are putting personal stake into your financial affairs and working toward a plan that works for you.

Tax Options

You likely want to know about taxes on these accounts, and CNN Money's article, "Retirement: IRA Investment Advantages" discusses them in detail. The article writes, "There are two types: a traditional IRA offers tax-deferred growth, meaning you pay taxes on your investment gains only when you make withdrawals in retirement, and, if you qualify, your contributions may be deductible...A Roth IRA, by contrast, doesn't allow for deductible contributions but offers tax-free growth, meaning you owe no tax when you make withdrawals in retirement." You don't need to be told that both of these situations are rather desirable.

Withdrawing Money

The end of the article notes, "Further, if you need the money before retirement, there are more opportunities for penalty-free withdrawals." Ultimately, the goal here is to save up as much money as possible before retirement so that you do not have to deal with financial burdens later in life. However, sometimes situations do arise, and you just need to have the cash available now. When that happens, you can turn to your IRA and take out some of the money to help get you through. Since it's your personal account, you do have the freedom to do that.

Working toward an IRA is really a smart idea. Whether you have just entered into the workforce or you are thinking about retiring soon, it's smart to start making a plan that can be really beneficial to you and your financial situation.

Author Jason Harter is a retired accountant who can happily say that he has all of his retirement accounts in proper order. He obtained his Online Bachelor's in Accounting Degree.