Investing In IRA: 10 Tips
If you want to invest in IRA, these 10 tips will help you make the most of this retirement vehicle. IRA, which stands for individual retirement account, is a tax deferred account. There are many options when investing in IRAs but the choices do not have to overwhelm you. Here are ten tips to keep in mind when investing in an IRA.
- Open an account with a discount broker. Opening an IRA with a discount broker or with a specific low cost fund family will save you a bundle on fees.
- Buy no load mutual funds. No load mutual funds are commission free but loaded mutual funds are not. They usually charge between five to six percent immediately upon sale. These loaded funds will have shares A in the title, so stay away from them.
- Buy index funds. Index funds invest in an entire sector of the market. They offer diversification and razor thin fees.
- Diversify holdings. Make sure your investments are not in one sector. It is best to have both domestic and international holdings to minimize risk.
- Don’t try to time the market. Financial gurus that tell you what the next hottest fund is are simply taking a guess. Don’t play that game because you will end up selling when you should be buying and visa versa. Steady consistent investments are best.
- Change asset allocation when you age. When you are in your twenties you should be 100 percent invested in mutual funds. But in your 40s, asset allocation should be 60 percent mutual funds and 40 percent bonds.
- Invest in a Roth IRA. Everyone qualifies for a traditional IRA, but there are income ceiling for a Roth IRA. Singles making more than $105,000 and married couples earning more than $177,000 do not qualify. If you do qualify, this account offers tax free funds at retirement. The maximum contribution is $5,000 a year, but over time it adds up to a nice sum.
- Open a SEP IRA if you are self employed. ASEP IRA is yet another tax deferred account that is usually set up by a firm for its employees or it can also be opened up by self-employed individuals. This account allows contributions up to 25 percent of earnings for a maximum of $45,000 a year.
- Take advantage of the catch up provisions if you are over 50. Investors 50 and over are entitled to contribute $6,000 a year for either the traditional or the Roth IRA. This is a great opportunity to put away some extra money.
- Consider automated payments to fund your IRA. Set up an automatic investment schedule for withdrawal of funds into your IRA. You will save more in your account and you will get used to not seeing the money.
Investing in an IRA is essential for your financial future. While there are many different ways to invest, the best way is the way that makes you most comfortable.