It's considered bad planning to expect Social Security benefits to be enough to cover your living expenses during retirement. In order to help supplement the benefits you may (or may not) receive from Social Security during retirement, a fixed rate IRA is a possible option for saving money and earning interest.
A fixed rate IRA is funded by a Certificate of Deposit. It's the ideal savings vehicle for individuals who like to save with a fixed interest rate of return, and interest that is tax deferred. In addition, your contributions into a fixed rate IRA may also be deductible from federal income tax, check with your accountant to determine your eligibility.
There are fixed rate IRA savings options for people who don't plan to make additional deposits into the savings while the money is being saved, as well as options for people who want the ability to contribute additional funds to the fixed rate IRA once it's opened. Most fixed rate IRA are renewable once they have reached the date of maturity if you'd like to set it up to automatically renew for another term of the same length of time.
Using a fixed rate IRA requires that you intend to leave your money in the account until it reaches it's maturity date. Taking the money out early will result in an early withdrawal penalty. Once the maturity date has been reached, you have a grace period (usually around 10 days) during which time you can withdraw the money without penalty, or leave it in to automatically renew for another term.
Unlike variable rate IRAs, the fixed rate IRA is FDIC insured. The money you deposit is guaranteed. Fixed rate IRAs are risk-free savings accounts, much like your regular bank savings, only they earn higher interest rates to maximize your return.
Fixed Rate Roth IRA
Earnings and qualified distributions into a Roth IRA are tax-free, making the Roth IRA a good investment option for your future retirement needs.
- Roth IRAs are not restricted to employer sponsored retirement plans
- You can make contributions past the age of 70 ½
- In 2008, individuals under the age of 50 can contribute $5000, while individuals over the age of 50 can contribute $6000 per year.
With a fixed rate Roth IRA, you can select from 1 year, 18 months, 2 years, 2.5 years or 5 year terms, with a fixed rate of interest that is paid over the entire length of your selected term.
Fixed Rate Traditional IRA
Contributions to a fixed rate traditional IRA may be deductible from your gross income on your federal income tax return during the year you make the contributions. Earnings in a fixed rate traditional IRA grow tax-deferred. The deductible contributions and earnings are subject to federal income tax when withdrawn from a fixed rate traditional IRA. This means you aren't paying income taxes on earnings and contributions until you are retired and in a lower tax bracket.
- You can't contribute to a fixed rate traditional IRA during the year you turn 70 ½ or after.
- You can contribute up to $5,000 or 100% of your income annually (whichever is less)