I have some questions about an IRA (individual retirement account). Can someone help me?

I was just wondering how much % interest you collect and I was hoping someone could tell me a little bit more about it. All you do with it is just deposit money whenever you want and it just collects interest? I'm guessing you can't withdraw money from it? Is your money safe in one of these accounts or can you lose it somehow? Are you required to keep your money in the account for a certain amount of time?





I would like to start early with my retirement plan. Based on my calculations, if I deposit $4,000 a year for 40 years and at 10% interest, I'll have $1,808,840.59.





I would much rather have that then rely on social security.





Wait a minute... I could just deposit $16,000 total and in 40 years w/ 10% interest, I'll end up having 2,494,518.31. Are you allowed to only make 1 deposit in an IRA?|||IRAs are a tax-deferred way to save money for retirement. IRA money can be invested in anything you want, with a few exceptions. That means, you can buy stocks, bonds, whatever. There is not a fixed interest rate, and there is definitely risk involved. It's possible that you could lose your money (although historically bonds or a diversified stock portfolio are very safe).





There are 2 types of IRA: Traditional and Roth. With a Traditional IRA, you do not have to pay any taxes on the money that you put into it, but you have to pay taxes when you take the money out. A Roth IRA is the opposite - you pay taxes on the money that you put in, but you don't pay any taxes (on the principal or the interest) when you take it out.





For a Roth IRA, the principal can be withdrawn at an time (because it has already been taxed), while with a traditional IRA, there is an early withdrawal fee if you take your money out before you are 59 1/2.





You can invest up to $5000/year in an IRA, per individual in a family.





If you have more than 10-15 years until retirement, then I definitely recommend that you don't rely on Social Security, and take retirement planning into your own hands.





As you do your retirement planning, remember that inflation makes it so that you will need a lot more money in 40 years to maintain your lifestyle. So, while that $2M looks like a lot, chances are you will need more than that, perhaps significantly more.|||Your IRA will only make as much interest as what you have it in. It can be left in cash, stocks or bonds.





You need to choose what you feel comfortable with, right now the cash is lucky to get 5%, but remember in stocks you can lose value if the stock goes down.





Look at a ROTH, you pay the tax now, but none when you withdraw. You can only deposit up to $5,000 per year in most IRAs|||An IRA is not a specific investment; it is just a type of retirement investment account. Within the account, you can hold bank CDs, mutual funds, stocks, etc.|||You can make as many contributions as you want up to the allowable limit a year. What it earns depends on how it's invested. You can have your money invested in FDIC offerings but you are looking at lower rates there, albeit for less risk. You can open up an investment IRA and probably get more of a return but of course, there are risks involved there.





You have to keep your money in the account until you are 591/2. At that point you can take penalty free distributions, but you are still taxed. There are certain situations where you can tap into an IRA without penalty (first time home purchase, medical, death, and a few others) but they are very specific situations.





Basically, an IRA allows you to save money on a tax deferred basis for the purpose of retirement. You still have a tax liability in the end, but the idea is that when that is an issue, you will be older and most likely in a lower tax bracket.





That was a real general overview, and really only specific to Traditional IRAs. There are different rules for SEP IRAs, Roth IRAS, and Keoughs.|||for your second scenario, a one time slug of cash, interest over 40 years at 10% obeys the following equation:





FV=pv*(1+i)^n





where FV = Future Value


PV=present value [for your case, 16k]


i=the interest rate, expressed as a decimal, so 0.10


n=number of periods, or in your case, 40





so (1+i)^n = (1.1)^40 = 45.259 and 16000*45.259 = 724148





for your sinking fund, you'd need to do this recursively for n=40, PV=4000, n=39, PV=4000, etc...





I put it in a spreadsheet and the sinking fund adds up to 1,947,407