Why You Need To Be Stashing More Money In Your IRA
By Paul Esajian on September 11, 2015
Maxing out your IRA contributions this year could produce a far bigger wealth windfall than you think!
Have your maxed out your allowable retirement account contributions for this year? You should. This isn’t just about helping more individuals unlock the trillions in poorly invested retirement funds, or using self-directed IRAs to invest in real estate. It is about maximizing short-term financial wins, and dramatically increasing future potential, without sacrificing the important milestones in between.
How Much Can I Contribute to an IRA this Year?
In 2015 most individuals can contribute $5,500 to an individual retirement account. Married couples can then potentially contribute up to $11,000 in 2015. There are 401ks, SEP IRAs, Roth IRAs, and other variations. Those contributing to traditional IRAs, in particular, may find that they can scoop a big tax break this year. This could be $11k right off your tax bill. Some may even be able to contribute more depending on age and status. And there shouldn’t be a single person reading this that wouldn’t rather pay themselves than the IRS, and get to make money off of that cash every year.
Freedom from the Myths about Retirement Savings Accounts
One of the most common reasons that so many do not contribute to IRAs is that they think it requires locking up their money to ‘infinity and beyond’. That’s not the case at all. It doesn’t mean totally tying it up, suffering poor returns, lack of control, or getting killed in the stock market. You can get great returns, enjoy flexibility, and you can do it without serious financial sacrifice in the short term too.
If You Knew How Much You Could Generate, You Wouldn’t Hesitate
Did you know that if a couple started contributing $11,000 a year to a retirement account as late as age 40 and could keep it growing for 30 years, at just a 10% annual return, they’d set themselves up for a passive income of around $70,000 a year in retirement according to Vanguard’s retirement income calculator. That might not sound like a lot, but that’s getting almost 7 times your money back each year.
Now look at it another way: if you stashed away just $5,500 in an IRA each year from age 35 to 65, with a 10% annual return, you’d end up with almost $1,100,000. Yes, you’d be a millionaire, just by investing $5,500 a year. Then you can live on the interest and remain a millionaire, till you pass it on. That would be double for a couple.
You Can Invest in Real Estate with Your IRA
You don’t have to leave it up to someone else to invest your retirement account money in low yielding or highly risky investments. You can actually direct it to be put into real estate investments.
Now if you could generate an average of a 20% annual return over the same time period, with the same annual contributions you’d have over $9,100,000, each! Yes, that’s almost $20 million.
That’s not too shabby for putting aside 5,500 bucks a year each right?
And this is all if you haven’t already begun contributing to a 401k at work or an IRA on your own. You can even virtually choose to invest in real estate anyway you want too. That means you can pick what properties it goes into, and where. You can choose to flip houses with this money, lend it out, or buy rentals, or something else. And it grows and snowballs returns without the tax hit.
Benefits of Self-Directed Real Estate IRAs
- Potential for higher investment returns
- Increased security and protection from the downside
- Potential for better financial and legal protections
- Compounding gains
The Amazing Flexibility of IRAs
It’s not just the fear of locking up money for long periods that scares people off of this amazing financial tool. The benefits of self-directed IRAs are great. There is no denying that. Yet, when it comes to pulling the trigger, and taking action, many begin thinking it is going to be confusing or restrictive. And it doesn’t help that some messaging from IRA administrators reads that way. Ironically this is one of the times that the IRS website can be a lot clearer and easier to make out. Administrators just have to be extra cautious due to regulations.
The beautiful thing is that individual investors actually have a lot more freedom and access to their money than they assume.
Note that:
- You can access your IRA money at virtually anytime
- You can use your IRA savings and gains to buy a house to live in too
- You can use your IRA funds to cover college tuition
- IRA funds can be tapped for hardships like emergency medical bills
- Many of these exceptions also extend to expanded family members too
These little known advantages make investing in real estate through an IRA pretty much irresistible. Don’t wait to start reaping the benefits…
Disclaimer: This is not professional tax advice. Each individual’s circumstances are different. It is always essential to speak with a tax professional before making any moves and finding out the exact benefits and implications for your specific circumstances. But do not put that off.