What Is an IRA?: An Introduction to 2 types of Individual Retirement Accounts

1 min read

What Is an IRA?: An Introduction to 2 types of Individual Retirement Accounts

Two main types of IRAs are available to investors: Traditional and Roth. Each type offers different tax advantages, but both offer flexibility and security.

Traditional IRAs allow you to contribute pre-tax dollars, while Roth IRAs let you contribute after-tax money. Both accounts offer similar investment options, but each has pros and cons.

For example, traditional IRAs are subject to taxes during the account owner’s lifetime, whereas Roth IRAs aren’t taxed until withdrawals are taken. With a traditional IRA, you can invest in stocks, bonds, mutual funds, ETFs, real estate, and other investments. With a Roth IRA, you can invest only in certain assets, including stocks, bonds, and mutual funds.

Both IRAs offer flexibility, allowing you to withdraw contributions anytime without paying taxes. But if you decide to pull back on your contributions, you’ll lose the opportunity to grow your wealth over time.

How much should I put in my IRA?

Once you’ve opened your IRA, you’ll have two choices regarding how much money you want to contribute.

First, you can choose to make a single contribution. In this case, you’ll receive a specific amount yearly. If you don’t spend all of your earnings, you’ll pay taxes on any remaining balance at the end of the year.

Alternatively, you can opt for a series of smaller contributions. In this scenario, you’ll get a set amount every month. If you don’t use up all of your income, you won’t owe taxes on any leftover funds.

How long will my IRA last?

Your IRA will likely last as long as you live. However, it’s important to note that the IRS limits the number of years you can keep your money in an IRA. After five years, you must begin taking distributions.

You’ll need to withdraw money from your IRA before you reach age 59 1/2. The IRS recommends withdrawing no more than what you would have paid in taxes had you withdrawn your savings earlier.

To learn more about the rules surrounding IRAs, visit the IRS website.

Is it safe to hold cryptocurrencies in my IRA?

Yes! Cryptocurrencies are considered property by the IRS. As such, they fall under the same guidelines as other forms of property.

This includes the ability to store them in an IRA.

You can even use your IRA to purchase cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and others.

If you plan to sell your coins later, follow the proper procedures outlined by the IRS. For example, you may need to file Form 8949 when selling your coins.

You can find more information about cryptocurrency taxation from your advisor.

Have A Story? Get Featured On Cosmosups Plus 100+ More Exclusive Crypto News Sites