Every year, we make tons of resolutions. We sign up for a gym membership and vow to get healthy, we swear to ourselves we’ll start going to bed on time, and we make promises to become healthier, happier people. But this year, the best resolutions you can make are the ones that affect your finances. Help nurse your credit score back to health, make your checking account happier, or invest in your future and start down the path of a healthier, happy financial year.
You may not even know what an IRA (individual retirement account) is. That’s okay. We are here to help the confusing become understandable!
One of greatest advantages to saving for retirement is the tax benefits you get when investing in an IRA or other qualified retirement account. Most people know there are tax benefits to opening an IRA account, but few understand how many benefits there are, and how powerful they can be in the cause of saving money for retirement. Did you know there are at least six tax benefits to opening an IRA account?
We discuss these benefits more in-depth below, and how you can leverage them for your own retirement savings.
When it comes to individual retirement accounts, you have several choices. All offer some tax savings. The big difference is when, exactly, you get those savings.
For some people, a traditional IRA still has a lot of appeal. These taxpayers find that this type of savings plan helps build tomorrow's nest egg while reducing today's taxes, thanks to a deduction that doesn't require itemizing.
An individual retirement arrangement (IRA) is a personal retirement savings plan that offers specific tax benefits. In fact, IRAs are one of the most powerful retirement savings tools available to you. Even if you're contributing to a 401(k) or other plan at work, you should also consider investing in an IRA.
What types of IRAs are available?
There are two major types of IRAs: traditional IRAs and Roth IRAs. Both allow you to make annual
contributions of up to $5,500 in 2016 (unchanged from 2015). Generally, you must have at least as
much taxable compensation as the amount of your IRA contribution. But if you are married filing jointly, your spouse can also contribute to an IRA, even if he or she does not have taxable compensation. The law also allows taxpayers age 50 and older to make additional "catch-up" contributions. These folks can put up to $6,500 in their IRAs in 2016 (unchanged from 2015).
Both traditional and Roth IRAs feature tax-sheltered growth of earnings. And both give you a wide range of investment choices. However, there are important differences between these two types of IRAs. You must understand these differences before you can choose the type of IRA that's best for you.