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September 25th, 2013

4 Good Reasons Why You Should Open and Invest Actively in an IRA

An individual retirement account, or IRA, is one of many possible savings avenues that you can build toward your retirement. IRAs put the investment decisions on the account holder, you, so you’ll need to educate yourself on some investment basics before you start. If you’re under 50, you can contribute up to $5,500 of your income to an IRA tax-deferred each year. Check out Sunwest Trust, Inc., for more information on updated IRA contribution limits. If neither you nor your spouse can take advantage of a retirement plan through your workplace, then any contributions you make are deductible from your tax returns.

You can also contribute to an IRA whether you have a retirement plan through your workplace or not assuming that you have an earned source of include. In general, if you want to help build extra savings for the future, then IRAs are one of the most flexible individual savings plans that you should consider.

1. Liquidity

Most workplaces offer some form of retirement or pension saving plans to go along with other benefits of your employment. If you’ve been employed for most of your life, then your savings might be locked up in a pension account that may have additional restrictive rules limiting when you can pull out your funds for such things as a down payment on a second home or on a new car. Worse yet, you may be locked into a low rate of return and further limited as to where and when you can invest those funds.

2. Self Managed IRA Arrangements

While attempting to grow your nest egg, a self managed IRA arrangement provides you a host of additional non-standard investment options to invest in, so it’s possible to benefit in more ways than one. Since you are not restricted to public offerings, you should research private ventures to see if there are any companies that you like and could be profitable. It’s just like a venture capitalist looking to get in on the ground floor of a brand new business idea, your IRA can help a promising business grow by pumping cash into it early during its lifecycle. If your investment is successful over time and depending on your contractual arrangement and the profitability of the venture, then you may stand to gain a nice return on your investment.

3. Individual Investment Real Estate, Not REITs

Buying an investment property with an IRA may be one of the investments that you would like to do with your retirement funds. It can be a long-term investment that you can sell whenever you’re ready, and you can put money into it to increase its value. With self directed control of your retirement plan, it places you in charge of the direction of the investment activities and opens up the real estate market to you as a possible investment opportunity. You can use the funds not only to buy an investment property, but also you can draw on funds within the account to improve the property. When you’re ready if you have purchased the investment property right, you have done your homework and know the market, then you can hopefully sell your asset for a decent return.

Single-family investment property isn’t the only potential market up for grabs. Assuming you are savvy enough, investing in an apartment complex can give you long term income as you age. Although, you will need to devote IRA resources toward maintenance and repair, you can use the property for rental income to build your retirement savings account.

4. More Diverse Investment Options, Including Franchises

Your IRA can also help you get involved in other alternative investments that are outside the standard model of owning the traditional stocks, bonds, mutual funds and REITs. Investing your funds in a franchise may give you the chance to own an established business in a highly trafficked area, and it can be great for building your retirement savings, so at or after the age of retirement you can build up enough cash to replace your job income. One thing that should be pointed out before investing in a franchise, is that most franchises is that although they are proven, they also can take three to five years for you to see returns, so you must be willing to wait sometime to see a return on the investment. However, if you are patient and are willing to take a risk, then you could wind up as a big winner.

Save Now for the Future

For the forward-looking person, an IRA represents a temporary tax haven during your working years to divert a portion of your personal income into savings on a tax-deferred basis. An IRA gives you lots of options for controlling your money and building for your retirement and hopefully it inspired you to learn more. Can you think of any more reasons to open an IRA? I’d love to hear about them in the comment area.

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