If you own a Traditional IRA, you probably understand the importance of diversifying your funds into an array of investments to make wise retirement choices. However, many Traditional IRA holders are now taking their investments to the next level and adding precious metals, such as gold and silver, to their portfolios as well. The following information can help you to better understand how a traditional IRA differs from a self directed IRA portfolio, how to invest in assets such as precious metals, and discuss methods to protect the funds in your portfolio against drastic economic changes.
Traditional IRA Explained
In 1974, traditional Individual Retirement Accounts were initiated via the Employee Retirement Income Security Act, often referred to as ERISA.
An IRA is an investment vehicle that has been created specifically to help investors save for retirement. Money which is added and accumulated within an IRA will not be taxed, and in fact, will continue to grow without taxes until the investor is ready to withdraw it.
Traditional IRAs differ from 401(k) portfolios in that employers do not sponsor traditional IRAs. Instead, individual investors must qualify for the ability to establish and put funds into their IRA. However, the qualifications are not difficult to meet. In fact, if you earn taxable income and are under the age of 70 1/2 years old, you can qualify to create your own IRA.
While most IRA holders do enjoy many benefits of having this type of portfolio, there is a drawback as well, in relation to other types of investment vehicles for retirement. Since last year in 2014, investors who are under 50 years old are only permitted to add $5,500 to their IRAs annually; those who are older than 50 are allowed to contribute at annual rate of $6,500. Just as is the case in other types of accounts, early withdrawal is subject to a 10% tax penalty; therefore, this penalty will need to be paid if the money is withdrawn before age 59 1/2, when retirement age begins to approach. However, there are a few exceptions to this rule, for example, if the investor provides proof of financial hardship. After the age of 70 1/2, investors are no longer able to contribute money to their IRAs, and are required to withdraw the funds.
Traditional IRAs tend to be popular because of the wider range of investment choices for this type of account. Employee-sponsored investment vehicles tend to be more limiting, though your IRA custodian may still have the power to limit the decisions that you make. Another important point to remember is that the IRS will not allow funds from your Traditional IRA to serve as an investment for tangible assets, such as gold bullion or real estate. Additionally, investors may not take out loans from their IRAs.