Individual Retirement Accounts (IRAs): Which is Best for You?
Individual responsibility for retirement planning continues to increase as social security benefits are declining and and fewer employers provide defined benefit pensions.
Most employers now offer defined contribution plans where the employee has the option to defer a percentage of their salary that remains in an investment account until at least age 59 ½. Most employers will match a percentage of their employee’s contributions. If your employer does this, you should contribute at least enough to receive the maximum employer match amount.
The government supports qualified employer retirement plans by allowing the employee contribution amount and employer matching contribution to be excluded from your taxable income. These contributions and the resulting investment income are deferred from taxation until distributed. The benefits of not having to pay taxes on your earnings every year allows your investment to compound untaxed, significantly enhancing its long-term growth potential. Delaying, or deferring, when you pay income tax on the earnings of an investment provides a means to "earn interest on your interest."
To further supplement individual retirement savings the government allows individuals with earned income to contribute up to $5,500 ($6,500 if over the age of 50) in 2016 to an individual retirement account (IRA). There are three types of IRA’s, each with different benefits, eligibility, and rules:
To learn more about the benefits of having an IRA, or to ask questions about which is right for you, please contact Meridian Investment Partners at (404) 585-5946.