Introduction to Tax Advantaged Retirement Accounts

Posted by BeingPreparedAdmin on Dec 21, 2011 in Retirement Planning | 1 comment

There are many ways to invest for retirement. One effective and smart way is to use tax advantaged retirement accounts. The main purpose of these accounts is to help your money grow faster through reinvesting the monetary gains without being taxed until you withdraw from your account. Depending on the type of account there are also immediate tax benefits. This increases the effects of compounding and will most likely grow your nest egg faster than a taxable retirement account.

Before going into anything else, we always encourage you to seek out a good certified financial planner that will work with you to create your personal financial plan to achieve your goals and advise you on how to invest your money.

These accounts typically fall into two distinct categories:

- Your contributions are deducted from your taxable income reducing your current income tax bill. The gains on your contributions are not taxed until you withdraw money from your account.

- Your contributions are not deducted from your taxable income, but there are no taxes when you withdraw money from your account. This is because you already paid taxes before your contributions.

These can be either individual plans or employer sponsored plans. In some employer sponsored plans, they will contribute into your account up to the company’s determined limits. A fast way to grow your nest egg is to take advantage of these employer sponsored plans.

Each one of these accounts has its own rules governing contribution limits, eligibility requirements and penalties if withdrawals are made before a certain age. Once again consult a certified financial planner to assist you.