Investors receiving tax refunds should consider using it to contribute to an IRA account, using money they hadn't budgeted for that could help build retirement savings.
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Rollover of old 401(k) plans from previous employers into an IRA or annuity is also worth considering, to take full advantage of compound interest.
1. Invest in the Stock Market
The stock market is where securities (stocks, mutual funds, and exchange-traded funds) are traded. Investing your money can help increase your wealth over time if done wisely; however, there are important things to keep in mind such as your goals, risk tolerance, and timeline to retirement when making this decision.
Long-term investing can be rewarding, but not without risks. To mitigate those risks and ensure you maximize returns while mitigating risk, diversify your portfolio with investments across industries and companies – dollar cost averaging may also be used to increase purchasing power over time.
Many may feel uncertain about investing in the stock market after its recent dip, but this represents an excellent opportunity to buy stocks at significantly reduced prices and create an opportune portfolio of well-diversified shares that can generate long-term benefits.
2. Invest in Bonds
IRAs can hold various assets, from stocks and bonds to mutual funds. When markets decline, your IRA balance may drop accordingly – however, this doesn't have to be seen as negative if you are well-diversified.
Stocks (also referred to as equities) offer the greatest potential returns over time but may involve greater risks than bonds. Diversifying your portfolio with both can help provide greater peace of mind when investing.
Bond funds and Treasury inflation-protected securities (TIPS) offer diversification. Furthermore, these investment vehicles may allow investors to generate tax-free income until withdrawing funds – making them attractive choices for many investors.
Municipal bonds don't cut an IRA as they're subject to ordinary income tax rates rather than capital gains rates that apply to stocks. Taxable annuities don't make much sense either; you could find better investments elsewhere such as an individual retirement account or contract from Experian.
3. Invest in Real Estate
Real estate investments are another popular retirement account investment choice, particularly if your rental property generates rental income. Most IRA-owned rental properties appreciate at a steady pace, enabling your account to grow over time while adding diversification to your portfolio and helping reduce stock market volatility.
However, purchasing a property using an IRA requires special considerations. First, you must establish a self-directed IRA (SD-IRA), working with a custodian that allows investments in alternative assets; also you must abide by IRS rules regarding who may use or manage the property.
As part of your IRA investment, any income or expenses related to the property must be subject to taxes and fees; improvements or repairs cannot be performed on it by yourself. Finally, withdrawing money before age 59 1/2 will incur income taxes as well as a 10% penalty tax.
4. Invest in Other Assets
IRAs can hold all sorts of securities, from stocks and bonds to mutual funds and exchange-traded funds. Stocks typically offer the highest returns over time while bond funds and other fixed-income investments can provide steady income streams.
If the risk associated with stocks makes you uncomfortable, diversifying your portfolio with bonds, real estate or other alternative investments may help mitigate it. Also, consider shifting into less volatile investments as you near retirement to maintain balance in your investments and minimize volatility.
Many self-directed IRAs invest in real estate, buying single-family homes or apartment buildings and then renting them out as rentals to tenants. Furthermore, it may even be possible to invest in commercial properties like warehouses, factories, and storefronts.
Your Retirement Account, or IRA, has certain rules limiting its investments such as life insurance and collectibles; however, its versatility means it can be used for a wide variety of creative investments if they conform with internal revenue code and IRA guidelines such as self-dealing rules (which prohibit IRAs from benefitting themselves or disqualified persons such as your spouse and children). While getting creative may lead to huge returns – but knowing exactly what you're doing is essential!