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Why Should I Consider Having An IRA?

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IRAs encourage people to save money by offering the following advantages:

  • Depending on the type of IRA and your circumstances, you may be able to deduct some or all of your contributions from your current income for tax purposes.
  • Generally, earnings and gains in an IRA are not taxed until the money is distributed. The idea is that you will have less income and thus a lower tax when you make a withdrawal from an IRA. In some cases, earnings and gains are not taxed at all if distributed according to the rules.
  • The availability of emergency cash. You can always access money in an IRA, no matter what type it is, whenever you want. Thus, cash for emergencies is always available.
  • It is not recommended that you use money in an IRA for emergency purposes unless you have exhausted all your other options. You will be charged penalties if you make a premature distribution in certain circumstances. For a full list of how you can access funds without penalty, see How To Withdraw Funds From An IRA Without Penalty.
  • Assets in a Traditional IRA are protected from creditors. In some states, assets in Roth IRAs are also protected from creditors. (If you are having credit problems, extra funds may better be directed toward paying down your debt instead of contributing to an IRA -- unless you are planning on going on disability and you havecredit disability insurance on the accounts on which you owe money).
  • Investors age 50 and older can make "catch-up contributions" - contributions which exceed the usual plan limits.
  • Money left in an IRA goes to your heirs without probate. While the money in an IRA is included in your estate for estate tax purposes, it goes automatically to your named beneficiary without having to go through probate. All the beneficiary needs to do to obtain it is to present a certified copy of the death certificate to the holder of the account. (See What Happens to the Money If I Die to review what options your beneficiary will have for receiving the funds.)

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