5 Less Known Reasons to Invest in a Retirement Account

Financial Planning

My son loves dinosaurs and bubbles. For easter, my wife thought it wise to get my 2.5-year-old son a dinosaur bubble gun. A small container of bubble solution would screw in under the mouth of the dinosaur and as you pull the trigger, bubbles would come out of the dinosaur’s mouth. Being the visionary husband and father I am, I have never shown him that his dinosaur can blow bubbles. Why? Just use your imagination. Now, he loves his dinosaur bubble gun and loves to make its mouth open and close as he shakes it. But I knew we’d have bubble solution all over the house and end up in his sister’s eyes.

What am I trying to say?

In our eyes, there are obvious purposes for certain things. However, we often miss out on potential benefits only because we don’t know they’re there. Now the instance of my son’s dinosaur bubble gun, it was for the best for humanity that he does not know of its proper use. Other aspects of life, we absolutely need to know “hidden benefits.”

Most people know the basic reasons for investing in a retirement account. They know it's a great way to save for retirement, reduce taxes, and benefit from compound interest over time. However, there are also some lesser-known reasons why someone should invest in a retirement account. Here are five of them:

  1. Asset Protection: Retirement accounts are often protected from creditors and lawsuits, which can be particularly valuable if you're self-employed or work in a profession that's vulnerable to lawsuits. For example, if you have a 401(k) plan, your assets are generally protected from creditors and lawsuits under federal law, which can give you peace of mind.
  2. Estate Planning: Retirement accounts can also be a valuable tool for estate planning. By designating beneficiaries for your retirement account, you can help ensure that your assets are distributed according to your wishes after you pass away. This can also help your heirs avoid probate, which can be time-consuming and costly. For example, if you have a Roth IRA and you name your spouse as the primary beneficiary, your spouse can inherit the account tax-free and continue to enjoy tax-free growth on the account.
  3. Health Care Costs: Retirement accounts can also be used to cover health care costs in retirement. For example, if you have a high-deductible health plan, you may be eligible to contribute to a Health Savings Account (HSA), which can be used to pay for qualified medical expenses tax-free. And if you're over 65, you can use funds from your retirement account to pay for Medicare premiums, deductibles, and copays.
  4. Flexibility in Retirement: Retirement accounts can also provide flexibility in retirement. For example, if you have a Roth IRA, you can withdraw your contributions tax-free at any time, and you can withdraw your earnings tax-free after age 59 1/2. This can give you more flexibility in retirement and allow you to adjust your income to meet your changing needs.
  5. Charitable Giving: Retirement accounts can also be a valuable tool for charitable giving. By designating a charity as the beneficiary of your retirement account, you can ensure that your assets go to a cause you care about after you pass away. And if you're over 70 1/2, you can make tax-free distributions from your IRA directly to a charity, which can help reduce your taxable income.

In conclusion, investing in a retirement account is like planting a garden. It takes time and effort, but the rewards are worth it in the long run. While most people know the basic reasons for investing in a retirement account, there are also less-known reasons, such as asset protection, estate planning, health care costs, flexibility in retirement, and charitable giving. By considering these less-known reasons, you can make the most of your retirement savings and enjoy a more comfortable and secure retirement. The challenge is to find the benefits that professional, not Do-It-Yourselfer, investors take advantage of for all their clients.