FLASHBACK FRIDAY: FAQS ABOUT OPENING A NEW RETIREMENT ACCOUNT
Since today is Friday, we will look back at some questions frequently asked about creating a new retirement account.
Question 1: What are the costs related to opening a retirement account?
Several costs determine the amount of money for opening a retirement account. Some fees include financial adviser’s fee, administrative charge levied by a bank, brokerage firm, or mutual fund firm (if you are creating an account with them), or other fees of any underlying investments such as trading costs.
Before choosing the retirement account, find out the associated costs. For instance, if you wish to invest in bonds and stocks, you must pay commission for each buy or sell transaction. If you want to invest in mutual funds, take note of its expense ratio. Ratios for actively managed funds differ from one fund to another. Passively managed funds offer lower rates.
Question 2: Can I take some money from this account prematurely?
There are existing rules and fees covering the withdrawal of money before you retire. The Internal Revenue Service enables a holder to take money at any given time from his standard individual retirement account. However, the individual needs to pay a particular amount of tax on the money withdrawn. Any amount taken from the account is considered an ordinary salary it was taken out. You may also opt to take some from your Roth IRA at will. But in some instances, withdrawals incur 10% tax penalty.
Question 3: What are the most suitable investments for my account?
Make sure you evaluate the underlying investments in a retirement account, including bonds, mutual funds, or stocks. Read the document or prospectus provided in the account. You may consult a financial adviser to know the best ones for your IRA.
Question 4: How much should I contribute to an IRA?
All retirement accounts have differing annual contribution limits that increase to adjust to current cost of living. This year, $5,500 is the contribution cap for a regular IRA for account holders under 50; $6,500 for people over 50. In Roth IRAs, the maximum contribution is based on the person’s tax filing status and his modified adjusted gross income.
Question 5: Do I need to take all my money from an IRA after I retire?
For account holders aged 70 1/2 and above, they should start taking the required minimum distributions from the regular IRA. But that is not the case for Roth IRAs. The amount is computed using distinct IRS life-expectancy tables.
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