You may not even know what an IRA (individual retirement account) is. That’s okay. We are here to help the confusing become understandable!
What is an IRA?
IRA accounts allow you to invest for retirement and comes with tax benefits to help you save for retirement. Both traditional IRAs and Roth IRAs have tax-free money on growth of funds.
Traditional IRA
Good choice if you:
- Are eligible for the tax deduction now
- Are not eligible for a Roth IRA
- Expect to be in a lower tax bracket in retirement
How it differs from Roth IRA:
- Must withdraw funds at a certain age or will be penalized
- Contributions are tax deductible*
- Allows you to contribute in addition to your retirement plan at work
- Consolidate before-tax retirement accounts without paying taxes
*Depends on Modified AGI and if you’re covered by a retirement plan at work
Roth IRA
Good choice if you:
- Are at or below the Modified Adjusted Gross Income limits
- Are seeking tax-free distributions in retirement
- Want to avoid required minimum distributions beginning at the age 70 ½
How it differs from Traditional IRA:
- Penalty-free withdrawals
- Consolidate after-tax retirement accounts without paying taxes
Contribution:
For 2017 and 2018, you can contribute $5,500 to all your IRAs, $6,500 if you are 50 or older.
How to Open an IRA
You can open an IRA at most financial institutions.
Things to ask your provider:
- Are there any fees associated in opening an account?
- What type of investments can be held in the account
- What kind of guidance or advice is available?
Sources:
https://www.bankrate.com/investing/ira/all-about-ira-accounts-for-novices/