Are you considering investing in an Individual Retirement Account (IRA)? It’s a popular choice for many investors looking to save for retirement and upgrade their future finance. Some young investors call it a ‘slam dunk.’ However, like any investment option, IRAs come with their own set of drawbacks that you should be aware of. Should you stay away from IRAs? Well, you’ll find out the answer here. So let’s get started.
Low Annual Contribution Limits
Unlike some other retirement savings options that allow for higher contributions, IRAs have strict limits on how much you can contribute each year. For 2021, the biggest contribution limit for a traditional or Roth IRA is $6,000 if you’re under 50 years old. If you’re beyond 50, you can make an additional catch-up contribution of $1,000. While this may seem like a substantial amount at first glance, it may not be enough for those who are looking to aggressively save for their retirement.
The low annual contribution limits can be particularly limiting if you have other retirement accounts or if your income allows for larger contributions. However, it’s worth noting that even with these limitations, IRAs still offer valuable tax advantages and potential growth opportunities.
Early Withdrawal Penalties
It’s true that IRAs offer tax advantages and long-term growth potential, but accessing your money before reaching the age of 59½ can come with costly consequences. Here is the case. Suppose you withdraw funds from a traditional IRA before the specified age. You will likely face …