IRA : Couldn’t Be Happier

I recently was advised to open up an IRA account, and I really couldn’t be happier with it. It’s basically a savings account that is tax exempt until I cash it out at a certain age, and all the money that goes into it each year will reduce my taxable income by that amount.

That is actually the primary reason that I did it, was so that I could keep that money and not put it in Uncle Sam’s hands, whom I already thought was getting quite a bit from me at that point! Also, I wanted to take advantage of one of the government’s best tax breaks and have my money work for me instead of me working so hard for my money all the time, the typical schpiel, but it’s true.

I got my first statement in the mail, and after about two months, I must say I am more than delighted with the return on my money thus far, and do plan on making several deposits this year so that my money can really build in this account and I can reap the benefits of this awesome tax break as well as awesome investment opportunity. It’s a no brainer, kind of like airline credit cards and gas credit cards, you get something for nothing (if you pay your balance every month that is!)

The only rule I’m aware of is that you can’t invest more than 25% of you income for that year, and that’s the limit that they place on it so that people don’t get too crazy with it and invest over 50% of their income in order to strictly reduce their taxable income. Coming up with the money for it, especially if it’s 25% of your income, can be very tricky, especially if you’re also planning on paying a big tax bill, but if you can, it’s definitely worth it.

Think about it, you’re going to have that money building in an account that you won’t touch for a very long time, and you can still get it out if you need, but there will be penalties, and you will be taxed on it I believe.

Also you need to keep in mind that it’s not a “dollar for dollar” tax credit, but rather it only reduces your taxable income by that amount, so don’t go thinking if you start one for $10k that it will save you that much on your taxes, it will only save you a fraction of that amount on your taxes. A tax advisor can explain it though if you thought it was something you’d like to pursue.