Not everyone plans for tomorrow. And for those who'd rather live for today, the subject of retirement rarely is top of mind. Ask one of those people, "What is an IRA account?" and the response may well be a blank stare.
But time catches up to us all. And for many, an IRA (individual retirement account) is a financial vehicle that provides tax incentives to encourage individuals to save money for their years after employment.
An IRA Should Be Part of Your Nest Egg
Many of the financial planners we've talked to answer that question, "What is an IRA account?" with a shorter answer that runs along the lines of, "An IRA is something you really should be looking at if you want to build a healthy retirement nest egg."
"IRAs are a crucial part of a retirement strategy," said Nicholas LaVerghetta, a certified financial planner with NCM Capital Management, LLC, in Ramsey, New Jersey. In a recent Ally Bank interview, he added, "I stress to clients that the sooner one can open one and start contributing, the better off they will be."
There are different kinds of IRAs, and they can hold a wide range of financial products, from higher-risk choices like stocks to lower-risk ones like CDs. The range of options provides an opportunity to pick an IRA that fits into almost any financial plan.
An IRA is Portable, Too. Here's Why
You can roll over money from some other retirement plans into an IRA. And many experts say this can often be a wise decision.
"Leaving your current job? Then you've got a great opportunity to roll over your 401(k) into an IRA," SmartMoney notes. "This will give you many more investment options than either leaving the money in your old 401(k) or rolling it over into your new employer's plan."
Handle IRA Rollovers with Care
You need to handle any rollover properly if you want to avoid paying taxes on the disbursement. As a general rule, you have 60 days from the day you receive the money to complete a rollover to avoid taxes. And you may only roll over funds from the same IRA once every 12 months for traditional and SEP (simplified employee pension) IRAs.
There's another wrinkle: If you have your old employer cut you a check for the money, it will be subject to 20 percent withholding and possible tax penalties, even if you plan to roll it over. To avoid that headache, financial planners recommend a direct rollover, where the funds go straight from your old plan to your IRA.
Ally Bank is Here to Help
We make it easy to open an IRA at Allybank.com, where you will find more information about both IRAs and rollovers. In addition, live customer care representatives are available 24/7 to answer your questions at 877-247-ALLY (2559).