Is A Fixed Rate IRA Right for You?

If you listen to the talk about Social Security benefits and how they are dwindling down, you might start to get worried about how you are going to survive after retirement. Many people who are under the age of 40 may not even get to see any Social security benefits because the fund may be gone by the time they reach retirement age. That’s why an IRA, or Individual Retirement Account, is so important to have these days.

Fixed rate IRAs are possibly the most popular types of retirement accounts for the conservative investor. Fixed rate IRAs are tax deferred and they do not depend on the state of the economy to determine your rate of return. When you sign up for a fixed rate IRA, you begin with a certain interest rate given by your bank or financial institution. Throughout the term of your IRA, you keep that interest rate. There is no risk involved because you know you will always receive this same rate of return as long as you keep the IRA.

With a fixed rate IRA, you have several options available to you. If you are under the age of 50, you can make contributions up to $5,000 into your account each year. If you are over the age of 50, the limit is $6,000 per year. However, there are fixed rate IRAs available in which you do not have to make any yearly contributions at all. In addition, you can choose to have your IRA roll over into another term once your current one matures so you can keep building up your retirement fund for as long as you are working. However, just like most other retirement accounts, fixed rate IRAs charge a fee for taking the money out before you reach 59.5 years old. Sometimes the penalty may be as much as six months of the interest earned on the account.

Fixed rate IRAs are also insured by the FDIC. This means that any money that accrues in your account (up to $250,000 in most cases) is insured by the federal government so you are guaranteed to have it available when you retire. As such, they are much like a normal savings account at your bank but they grow tax-free and they have a better rate of return so you can maximize your retirement savings. You may even be allowed to deduct your fixed rate IRA deductions from your gross annual income. Talk to your certified account for the best tax strategies regarding your IRA and other savings accounts.

If you haven’t started saving for retirement, there is no better time than right now. Even if you contribute a few dollars a week to begin with, it’s good to get in the habit before it’s too late to start saving. Social Security won’t always be there and even if it is, most people need to supplement their benefits with their savings to live a decent lifestyle.