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What are the differences between an IRA and a checking account?

If you’re a student, you must try to understand the ways you can save money and have a secured financial future. You may start your savings early so that you can be prepared to tackle any financial hardship in the near future. If you’re in debt, you can get out of it with the help of Christian debt consolidation loans. These loans may help you out of debts at lesser costs since the interest rates may be lower for the loan. These services help you save money as they offer discounts to you. But you must know the differences between an IRA and a checking account so that you can manage to know where you must save your money.

Differences between an IRA and a checking account

Student life is really an important platform and it really requires you to be on your tiptoes regarding your finances and other things. You need to responsible with your money. It generally happens that a lot of students fall prey to debts and cannot get out of the hell hole. So, if you try to save some of your earned money in the savings account, you can stay financially secured for the rest of your lives. Take a look at the differences you between an IRA and a checking account:

1. Genre of accounts
This is quite a common difference between the two. IRA account is retirement account where as the checking account is a saving account. You plan to save for the retirement and you do it in an IRA account. When you work and save in your retirement account, you save some money and your employer deposits certain amount in it. But for a checking account, you can save anytime you want and it has nothing to do with your employer, friends or relatives. It’s on you how much you save and till what time. This is not exactly for your retirement but you can consider it your retirement account. But the IRA account is for the sole purpose of your retirement.

2. Money withdrawing policy
This is also very important. If you want to withdraw money from your retirement account, you need to take out a loan for that such as a 401(k) loan. If you take out any money from the IRA account before you’re 59 and half years of age, you may have to pay 10% penalty fees. That can be a huge blow to your finances. But in case of your checking account, you can take out money anytime you want. It’s simply a bank savings account and your personal matter. You may not get the interest payment but apart from that you don’t have to pay any penalty fees or charges for taking out the amount. There is no maturity date of the amount that you deposit in the savings account.

Apart from the top 2 differences discussed above, you must also know that you can add any amount of money in the checking account and it really has no boundaries. There are rules to capital gains. This is not the case for the IRA account. There are no rules for the capital gains and the money you deposit has to earned income. The maximum amount that you can deposit is $5,000 in a year and that your income isn’t too high. These are the criteria that govern both the IRA account and the checking account.

Opening a Roth IRA Account Today (2009taxes.org)
Finding the Best Retirement IRA Companies (2008taxes.org)

Learn Your Roth IRA Withdrawal Rules and Penalties

Roth Individual Retirement Account or IRA is one of the plans that help people have a better option when it comes to choosing a good retirement plan. It is quite similar in structure to the traditional IRA but it’s more flexible and it offers better benefits than its other counterparts. Perhaps one of its advantages is that withdrawing the principal contribution will not include any penalty or taxes. This is the most vital of all the Roth IRA withdrawal rules and it is also the least known. But people need to be knowledgeable of this so they can have the best benefits of the retirement plan they signed up for.

If by chance that any of the withdrawal rules is not followed, or the owner had withdrawn some of the funds before the allowed time, Roth IRA penalty will be applicable. This would be specific to the situation and at times, there are possible exemptions to these rules. Specifically, the penalty will be applied if the owner will try to withdraw the earnings of the principal contribution before he reaches the age of 59.5. When you reach this age, then you can certainly avail of your contribution and its earnings, without any taxes. Also keep in mind that Roth IRA has a five year tax holding period. This means that the principal contribution should not be withdrawn within five years of opening the account. This rule applies regardless of age; the owner may reach sixty but if the account had not reached the tax holding period, then penalties will also ensue.

Undoubtedly, choosing Roth IRA as your retirement plan is a good choice. The strict rules regarding withdrawal and the penalties will ensure that people won’t be making withdrawals prior to their retirement and thus the funds will not be depleted in the process. Leaving the funds intact up until your requirement is a good decision as it will allow you to lead an independent life after your retirement.

What is a Roth IRA and how can it Benefit You? (2009tax.org)

IRA Rollover Rules

When does an IRA rollover occur? This occurs upon cash withdrawal from a certain qualified retirement plan and upon contributing all or a part of it in a span of 60 days to a new qualified plan. In accordance with the Internal Revenue Service’s (IRS) policy, the rules of IRA rollover permits individuals to waive their 60-day rollover prerequisite, but they must meet some qualifications in order for them to be qualified for the waiver.

The IRS is very considerate when it comes to the extension of the 60-day requirement for the rollovers. To cite an instance, when Hurricane Katrina devastated the United States, tax-payers were trapped in a hard situation thus, making them eligible for the waiver. So, the IRS permitted them to return their recovery effort to another qualified account without fine or penalty.

But, the rules of IRS when it comes to rollover are not that compassionate because only single rollover is permitted in a span of 12 months. If you want to break those rules, beware! You want to know why? You will unfortunately pay the taxes on the total price of the fund.

But, there are still substitute transactions that are less dangerous. Your custodial company must update the IRS with the roll-over checks but, the so-called direct roll-over is not reported to them. When it comes to transfer, there is absolutely no regularity limitation but, the process of transferring your fund numerous times is costly because custodial companies usually charge fees for conversions and withdrawals. In addition, you will not know the transferable assets which must be liquidated. A stock holding to be liquidated is absolutely not a good idea because you will just lock yourself in a loss that already has an existence on your paper.

The moment you make approximately less than a sum of $100,000, you can already use rollovers to convert from a customary to a Roth account. But, the consequence is that you need to pay the income taxes on whichever funds that were created with the use of pre-tax money.

Now that you already know the IRA rules, you can have more chance in managing your accounts the right way.

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What are the differences between an IRA and a checking account?

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