save the world How The Traditional IRA Works - Save For Retirement

If you want to retire and be on a beach, or traveling the world, or just home sleeping (use DSLR to take a picture of you sleeping), then the traditional Investment Retirement Account is for you. And we’re starting right now. Hey what’s up guys, this is Eli with Build Your Tomorrow, a channel dedicated to everything and anything personal finance. We believe in spending less than we earn, saving money, paying down debt, making sound investments, but, most importantly, we believe in investing in ourselves. So if you’re new here, consider subscribing. Before we get into the Traditional IRA, let’s put something out there. Work sucks. It just does. For the small percentage of you guys and gals that truly truly truly love what you do, then congratulations. I’m jelly. Jelly is short for jealous, fyi. But for everyone else that’s miserable going to work every day, I feel your pain. So what we have to do in order to earn our freedom is place as much money as possible into long-term investment accounts that have beneficial tax treatment. And that’s exactly what a Traditional IRA is. So let’s break it down. In a traditional IRA, you are essentially contributing pre-tax dollars. In other words, you are contributing income for which you have NOT paid taxes on. And this money that you just contributed pre-tax grows tax-deferred. In other words, you don’t pay any taxes on the money as it grows, and grows, and grows. But you should be asking yourself what’s the catch? Because as you know, death and taxes are the two certainties in life. Well the catch is that you have to pay taxes on the money when you make withdrawals from the Traditional IRA in the future. But before you get discouraged, let me explain. When we are working hard to earn a living and to save for retirement, our income is usually higher than most retired people. And because our income is higher, our tax rate is higher. But when we are retired, our income is usually less and so is our tax rate. Therefore, it’s beneficial for us to avoid paying taxes during our younger years when our income is higher and pay those taxes when we’re older and our income is lower because we’ll pay less in taxes because our tax-rate will likely be lower. There is more. If you withdrawal money from the Traditional IRA before age 59 and a half then you have to pay a 10% penalty along with taxes.

However, that 10% penalty can be waived for the following reasons:

First-time home purchase
Educational expenses
Disability or death
Medical expenses
Health insurance
Periodic payments
Involuntary distribution
Reservist distributions

The last important point about the Traditional IRA is that you must start making withdrawals after you reach age 70 and a half.

Sources: http://www.schwab.com/public/schwab/i...

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save the world How The Traditional IRA Works - Save For Retirement
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