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Easy Tips to Retire Wealthy with an IRA

Tips to retire wealthy

Retire Wealthy – Individual Retirement Account

The bright side of entering your golden years is retirement, especially the freedom to do what you want, when you want. If you’re a millennial (aged 22-37 in 2023), you can ensure that you retire wealthy if you make a few smart choices today. Adam Bergman, founder of IRA Financial, says that your age is one of the golden keys for a successful retirement.

One tool to building your retirement to retire wealthy is a retirement account, and in the case of a Roth IRA, the accompanying benefits of tax deferral and tax-free growth.

 
Key Points 
  • An Individual Retirement Account (IRA) allows anyone to save for retirement
  • Obviously, the earlier you start, and the more save, the better off you will be when you retire
  • By self-directing your plan, you open up your investment choices to alternative investments, such as real estate

Tax Deferral Popularized Retirement Accounts

A tax-deferral means that you don’t pay your taxes right away upon contributing to a retirement account. Instead, your contributions earn money as investments, and then you pay taxes only when you make a withdrawal via a distribution.

With an IRA, the general rule allows you make investments without paying taxes on your gains. This stands in contrast to a normal brokerage account, where your profits will be taxed, generally as capital gains.

However, with an IRA, your contributions are made on a tax deferred basis. Therefore, if you make $3,000 in gains by selling an investment, you can reinvest that $3,000 without paying taxes – yet. Again, you must pay taxes at the time of your distribution.

Roth IRA – Tax-Free Gains Leads to Retirement Wealth

With a Roth IRA, you fund your account with after-tax dollars. In other words, you pay taxes when you make the contribution, but then your distributions are all tax free. This is beneficial for participants who believe they will be in a higher tax bracket when they retire. A Roth IRA has many other advantages.

For example, let’s assume you have a Roth IRA or Roth 401(k) and you contribute $5,000. Over the years, you make many wise investment decisions, and that $5,000 increases to $50,000. Because you already paid with after-tax dollars, you can take out that $50,000 tax-free as a distribution. With a traditional IRA, you would owe taxes on the $45,000 in earnings.

Here are a few samples of how an IRA can build based on the age of the participant when the IRA is opened.

Your Savings Plan at Age 50 with an IRA

What if you only start saving for your retirement at an older age? Let’s say that you’re 50 years old when you decide to make a monthly contribution of $100 ($1200 annually). How much will you have when you withdraw on your distribution at age 72?

Current Age – 50
Starting Balance – $0
Expected Rate of Return – 8%, but for additional confidence, we will use 6% in these calculations.
When you start saving at age 50 and generate an 8% rate of return, you will have $71,872 (Roth IRA) or $55,195 (taxable account assuming a 25% tax rate) at age 72.

Your Savings Plan at Age 40 with an IRA

As you get older, it’s less likely that you will retire wealthy. However, it’s still important to create a retirement nest. Let us assume you start saving for your retirement at age 40 by making annual contributions of just $750 – what will you be at retirement age?

Current Age – 40
Starting Balance – $0
Expected Rate of Return – 8%, but for additional confidence, we will use 6% in these calculations.
When you start saving at age 40 and generate a 8% rate of return, you will have $108,713 (Roth IRA) or $72,257 (taxable account assuming a 25% tax rate) at age 72.

Your Savings Plan at Age 30 with an IRA

At 30, you are still a Millennial – one of the generations in the work force. The earlier you start, the more you’ll have. You can still achieve retirement wealth if you start contributing to your IRA immediately. Let’s assume you make annual Roth IRA contributions of $60 a month or $720 a year.  Let’s look at the numbers.

Current Age – 30
Starting Balance – $0
Expected Rate of Return – 8%, but for additional confidence, we will use 6% in these calculations.
When you start saving at age 30 and generate a 6% rate of return, you will have $236,580 (Roth IRA) or $234,285 (taxable account assuming a 25% tax rate) at age 72.  However, if you were able to contribute $200 a month or $2400 starting at age 25 through age 72, you would have $788,599 in your Roth IRA assuming an 8% annual rate of return.

Your Savings Plan at Age 25 with an IRA

Although you’re young and retiring seems far away, you decide it’s the time to make a retirement nest to retire wealthy. Truly, there’s no better time to start. Let’s assume you save $100 a month in your Roth IRA from age 25 through age 72.  Take a look at the numbers.

Current Age – 25
Starting Balance – $0
Expected Rate of Return – 8%, but for additional confidence, we will use 6% in these calculations.
When you start saving at age 25 and generate an 8% rate of return, you will have $586,959 (Roth IRA) or $306,677 (taxable account assuming a 25% tax rate) at age 72. However,imagine if you were able to save $5000 a year from age 25-72 assuming an 8% annual rate of return.  You would have a whopping $2,445,661 tax-free in a Roth IRA.

The Importance of Starting Young

As you can see from the examples above, the earlier you start contributing to an IRA, the more you’ll have when you get to retirement age. The later you start, the less you’ll have. This is why it’s so important to start an IRA early in life.

It’s also important to be consistent with your contributions. Create a reasonable monthly budget for yourself and make your IRA contributions an important part of it. The average American spends more on coffee, and as you can see from these illustrations, even $20 a week towards your future may allow you to retire wealthy, if you start early enough.

Traditional IRA & Self Directed-IRA

It’s your money, and you have options when choosing what your retirement looks like. Many people use a traditional IRA to make investments because they’re unaware that Self-Directed IRAs even exist. However, depending on your knowledge of and experience in the stock market, a Self-Directed IRA may be more appropriate for you. A Self-Directed IRA gives you the freedom to make investments in areas you may better understand, including in real estate.

Learn More: Traditional IRA vs. Self-Directed IRA

Traditional IRA

A traditional IRA is an account that allows you to contribute pre-tax income with tax-deferred growth. Your custodian holds your traditional IRA and makes investments based on your instructions from a set of limited options. With a traditional IRA, investment advice typically comes from a professional advisor.

Investment options with a traditional IRA include stocks, bonds, and mutual funds. As compared to a Self-Directed IRA, you are severely limited in what kind of investments you can make.

Contact Us

IRA Financial has helped over 25,000 clients invest $3 billion in alternative assets. Founder of IRA Financial Group, Adam Bergman, began IRAFG to educate retirement investors on how to properly self-direct their retirement accounts. With a Self-Directed IRA, you can make almost any type of investment; when you work with IRA Financial, you receive direct access to a team of tax and ERISA specialists to help you get started the right way.

Q For You

How old were you when you began saving for your retirement?

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