February 24, 2020

The Advantage of Putting Your Savings in an IRA Money Market Account

IRA Money Market AccountAn IRA, or an individual retirement account, is a great way to save up money for your eventual retirement. But there are many different ways to utilize an IRA, and some are more profitable (or less profitable) than others. For example, only having stocks in your IRA account is a very risky move and will probably just cause you a lot of stress as you watch your funds go up and down in the stock market. But having an IRA money market, on the other hand, is a very smart and less stressful move for investors.

What is a Money Market Account?

The easiest way to think about money market accounts is to compare them to savings accounts. And in fact they work very much the same way, but with a few key differences. Everything is on a greater scale in a money market account. The minimum deposit is higher, the minimum balance requirement is higher, and, best of all, the rate of interest on the account is higher. Like savings accounts a money market account is protected by the Federal Deposit Insurance Corp up to $250,000.

Investing in a money market account is a good strategy for a lot of people, but only if they are positive that they have the funds for it. A higher deposit minimum and balance minimum means that you will have more of your money tied up in the account. You should make sure that you have enough money set aside elsewhere for any emergencies that might occur, because dropping below the minimum balance requirement will incur heavy penalties on the account.

IRA Money Market Accounts

Many people think that an IRA means investing solely in the stock market, and this may be a worrisome prospect. But the fact is you can place your IRA funds in whatever sort of investment option you like, be it in bonds, certificates of deposit, or money market accounts. As with a regular money market, an IRA money market account gives you access to higher rates of interest than placing your funds in a savings account. The money is also safe and the interest is fixed, meaning you will constantly be improving your funds versus biting your nails as you watch the fluctuating stock market.

Tax Benefits

IRA Tax BenefitsThe biggest perk of an IRA account, and this is true whether it is invested in a money market account or any other type of investment, is that just by contributing you will acquire enormous income tax benefits. Just as an example, if your tax rate between federal and state is thirty percent, for every $1,000 you put towards your IRA you can save $300 in taxes. Be aware that this great perk comes with restrictions, so make sure you learn those before doing anything. For instance if you want to withdraw some or all of the money before you are 59 ½ years old you will incur tax penalties.