How to open an IRA is a question that arises frequently. There are a number of ways to do so depending on your financial position. Employees of businesses often have 401k plans. These are defined contribution plans where you choose what you will contribute to a retirement plan. This differs from a defined benefit plan where the payment you get from your plan is defined for you, while the contribution may fluctuate based upon your employer’s wishes. An IRA is basically a solo 401k plan that you run independently from an employer.
You can enter into a variety of IRA plans. The two most common are the traditional 401k plan and a self directed Roth IRA plan. A traditional 401k plan is a plan where you are contributing tax deferred funds. These funds are not taxed until you withdraw them at a future date. A self directed Roth IRA is one in which you contribute post tax money, but you do not pay taxes on the income generated from this money. How beneficial a ROTH IRA account is when compared to a traditional Roth IRA is dependent on your age. If you are young and far from retirement age, than a Roth IRA is better because you will compound your earnings tax free. These compounded earnings are often higher than the original contribution if you are 20 or less years from retirement.
You can invest in a number of things in an IRA account. These varying investments include stocks, bonds, ETFs or commodities and real estate. A self directed IRA real estate account can invest in real estate in a number of different ways, but the most common is through REITs. These trusts are regularly traded and liquid investments. They own real estate outright and lease it to individuals or businesses. A variety of REITs exist, including those that invest in residential, commercial, industrial and health care properties.
Investing and opening an IRA account is as easy as contacting a broker, either a brick and mortar brokerage house or a discount online broker, and requesting an IRA account be set up. Once it is, designate whether it will be a traditional or Roth IRA and transfer funds in to begin trading. Choose your investments wisely and you will be on your way to retirement.