The year 1974 was a significant one for American citizens. That was the year Congress passed the Employee Retirement Income Security Act, or ERISA as it is most commonly known. 1 With the goal of providing individuals the ability to better prepare for their golden years, this bill addressed a number of retirement issues, including establishing the individual retirement account, or IRA.
Providing Control to Everyone
The idea behind this important new financial tool was to provide incentives to encourage long-term savings. This came in the form of a tax advantage, allowing taxpayers to deduct up to $1,500 from their income if they placed those funds into a special retirement account.
Since the initial passage of this act, there have been a number of additions and changes to encourage even more savings. For example, the amount that can be deposited for a deduction is at least $5,500 today. Additionally, the Roth IRA allows additional future tax advantages on your earnings.
As a result, millions of Americans have nearly $5 trillion invested in IRAs today. While the average amount varies by age, those 60 and older have an average of more than $200,000 salted away for their retirement. 2
The Two Great IRA Mistakes
While the introduction and evolution of the IRA has been a financial boon to millions of retirees, there are two common mistakes that many Americans make. The first and nearly unforgiveable error is to not have an IRA and make the maximum annual contribution. Certainly, many wage earners feel they are unable to save any amount of funds, but the cost of ignoring an IRA is a multi-million dollar mistake over a lifetime.
The second very common mistake is to ignore the earnings you can achieve in a tax-free IRA. This is a critical mistake for two reasons. First, if an individual has earnings that are not subject to taxes, those saved tax dollars grow on a compounded basis for years, even decades if you start early enough. Additionally, IRA assets allow you to diversify your portfolio and plan for long-term growth.
Safety in Diversification
This power of the IRA is important to providing the future purchasing power you need in retirement. Diversification allows an investor to purchase assets that are proven to provide that protection, such as gold and other precious metals. For this reason Congress has authorized what is called a self-directed IRA, which may hold eligible gold & silver as an investment in a tax-advantaged account.
There are special rules and requirements for a gold IRA, but an increasing number of savvy savers and investors are adding this powerful tool to their financial picture. The financial crisis of 2008 showed many that their traditional stocks, bonds and other assets were subject to wild swings and uncontrollable factors. While investors who buy gold understand the market also has swings, they know that centuries of experience prove gold is the most stable of all assets over the long-term.
The Win-Win of Gold IRAs
While some less knowledgeable investors and savers put a premium over short-term earnings and market prices, the wise look to long-term trends for their core portfolio. When the power of gold to protect one’s purchasing power is married with full protection from annual taxation, a winning investment combo is created. One can be active in trading to cost average holdings (such as those who follow the Gold Silver Ratio), or simply rest assured that their portfolio is safely diversified.
2 – http://www.fool.com/retirement/2016/06/27/heres-how-much-the-average-american-has-in-an-ira.aspx