Finance -
What You Need to Know About IRA Finance
Jerry Glynn
For information about self directed IRA investments and opportunities visit our site. 
By Jerry Glynn
Published on 10/29/2008
This article discusses what the IRA process entails.

For many people, establishing a retirement plan is an important concern. Equally important however is the need to have funds available for various purposes such as college fees or any emergencies that may crop up. It can be quite difficult to keep up with several plans that will address all of these concerns, which is why the passage of a bill by Congress in 1997 that introduced new types of Individual Retirement Accounts or IRA's that can be utilized for savings as well was such welcome news. One of the goals for these new plans was to make it possible for people to use the money for certain expenses such as the purchase of a home or for college costs.

These new IRAs actually have a number of clear benefits over traditional IRAs. The older IRAs involved putting some money in your account and deducting it from your taxable income, which resulted in you paying less taxes for that year. This meant that your money increased without any taxes until the time that you take it out. When you do take it out however, you would have had to pay regular income taxes, as well as a 10% penalty if you were under 59 1/2 years old at the time of withdrawal.

With the newer IRAs however, there are more options for you to get access to your savings if necessary. One of these is what is known as the "Roth IRA", which allows you to put your money in now just like a traditional IRA. Unlike the old IRA however, a Roth IRA won't allow you to take a tax deduction this year. Furthermore, the money will grow in the account without incurring any taxes.

Now here is where the benefit comes in. If the money stays in the account for more than five years and you are more than 59 and 1/2 years old, you can withdraw this money without paying any additional taxes or penalties. In addition to this, you will also be able to withdraw up to $10,000 in order to pay for a first-time home purchase. And, if you are below 59 and a half years old and the money stays in the account for more than five years, you will not have to pay any penalties or taxes either.

The funds in this account can also be withdrawn for certain college expenses. In these situations, you will not have to pay any penalties, although you will have to pay taxes if you withdraw an amount that is equal to what you put in over the years.

There is yet one other option that you can consider, and that is the Education IRA. This IRA is actually a lot like the Roth IRA, except that you can withdraw the money in this account in order to pay for certain college expenses for your children or grandchildren without incurring any penalties or taxes. Roth IRA on the other hand will require you to pay taxes upon withdrawal, if you are under 59 and 1/2 years old.