5 Things You Should Know About IRAs

By Alicia Rose Hudnett Markets Fool.com

According to a March 2016 GOBankingRates.com survey, 1 in 3 Americans has $0 saved for retirement. If you are someone who isn't saving enough for retirement -- or at all -- one way to get started is to learn about the savings options available to you.

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One popular retirement savings vehicle is an Individual Retirement Arrangement (IRA). An IRA allows individuals to put money away for the long term, while providing them with some form of tax advantage.

Here's a quick snapshot of the two main types of IRAs: Traditional and Roth. Contributions made to traditional IRAs may be deductible or non-deductible. While all contributions made to a Roth are non-deductible. Both types of accounts let your money grow tax-deferred for decades. After age 59 1/2 (assuming you have met all other account guidelines), you can begin taking qualified distributions. You will, for the most part, owe ordinary income taxes on withdrawals from a traditional IRA (unless you've made any non-deductible contributions), whereas withdrawals from a Roth remain tax-free.

Here are five more aspects of the IRA to consider.

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1. Saving for retirement is an individual endeavor -- at least when it comes to puting away money in a tax-sheltered retirement account. Unlike other types of accounts or financial assets that are allowed to be titled jointly with a spouse or other individuals, an IRA can have only a single owner. And everyone should have one.

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2. An estate planning mistake many people may make is not understanding that certain accounts have their own beneficiary designations. Therefore, who inherits the account depends on who is listed on the account's beneficiary forms, not according to a will, a trust, or any other estate document. So, it's vitally important that when you first open an IRA, you name a beneficiary. And remember to review and update the beneficiary designation form every year, and especially when you experience a life event, like marriage or divorce.

3. One convenient aspect of the tax law is that you have until tax day to make your IRA contribution for the previous year. So, if you aren't in a position to make a lump-sum contribution at the start of every year (which has the benefit of giving your money more time to compound), you can spread your contributions over about a 15-month period of time -- from January through the following March. That could help ensure that you reach the annual contribution limit each year.

4. In most cases, you must have your own taxable compensation in order to fund an IRA. (Although a working spouse can fund a non-working spouse's IRA.) But, you don't necessarily need to use your own money to make your contributions. For example, if you have a child who earns income, you can let them keep their money, and you can contribute the money into their account. Remember though that you can only contribute the lesser of your earned income or the annual limit ($5,500 for 2017). So, for example, if your child earns $1,000 this year, you'd be limited to contributing $1,000 into their IRA.

5. All of your long-term investable assets should be considered as belonging to one portfolio. But one investing issue you may be running into is having multiple old 401(k)s or other workplace retirement accounts housed at previous jobs, each with their own limited investment menus. One move that could help your overall investment strategy is to roll all your 401(k)s into one IRA. An IRA is kind of like a catchall account: Not only can one IRA hold all your old 401(k) money, but you can of course make direct contributions into the account as well.

IRAs were established to help Americans save for their future, and retirement savers should take advantage of tax shelters such as IRAs to build and grow their nest eggs.

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