All about investing in private retirement accounts

Private retirement accounts are individual retirement accounts (IRAs) designed to meet your customized retirement needs. These accounts are a mix of stocks, bonds, and mutual funds, and one must invest in these accounts based on how consistent they are with the retiree’s IPS. It is important to choose the most suitable retirement account, the options for which are Traditional IRAs, Roth IRAs, SEP IRAs and SIMPLE IRAs.

  1. Traditional IRAs: The contribution to such vehicles cannot exceed $5000. Such contributions are tax deductible but are taxed as income when an individual withdraws from these accounts. However, not everyone qualifies for the deductible amount.
  2. Roth IRAs: The contribution to these accounts is not tax deductible, but the eligible distributions are tax-free, i.e., you do not pay any tax when you withdraw money from the account at retirement.
  3. Simplified Employee Pension IRAs: It is ideal for small businesses and freelancers to set up such accounts for its employees. The contributions to these accounts will enable the company to secure a lower tax rate.
  4. SIMPLE IRAs: These are similar to SER IRAs, except that they allow employees to make contributions to their accounts. These are also ideal for small businesses. All the contributions are tax deductible, thereby enabling the company to fall into a lower tax bracket.

Factors to be considered before investing in private retirement accounts:

  1. Investment opportunities: Check your eligibility to apply for various funds.
  2. Applicable charges: Compare the operational and trade fee as applicable.
  3. Order of funding: Keep in mind the order of funding for tax savings.
  4. Age and retirement horizon: Estimate age and retirement horizon for proper asset allocation beforehand.
  5. The purpose of funding: Know the purpose of funding the retirement.

Thus, private retirement accounts provide limited tax benefits but can be customized according to retirement needs.

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