IS AN IRA RIGHT FOR YOU?
If you're looking to save more for retirement, or want to maximize your tax savings, you may want to consider an individual retirement account (IRA). An IRA is a retirement savings account that offers special tax treatment to help you save for the long term.
Save On Taxes Now Or Later
You can set up a traditional IRA, a Roth IRA or both. They offer two different kinds of tax advantages that may allow your savings to grow more quickly than it might in a taxable account.
Traditional IRA — Pay your taxes later. Contributions to a traditional IRA may be fully or partially tax deductible, so your contributions may lower your taxable income if you meet certain requirements. Your money will continue to grow tax-deferred until you start taking withdrawals. You'll generally pay a penalty if you take the money out before age 59½ and must take the yearly required minimum distributions by age 70½.
Roth IRA — Pay your taxes now. You pay taxes on the money before you put it in your account. Contributions can be withdrawn tax-free at any time without tax or penalty. You must be at least 59½ and have held money in the account for at least five years in order to receive tax-free withdrawals of any earnings and interest on your contributions. You're not required to start taking distributions at any agebut your beneficiary will be required to take minimum distributions from the account after your death. You must meet certain income requirements in order to save in a Roth IRA.
Save More, Consolidate Your Savings
An IRA may make sense for you in the following situations:
- You've changed jobs, and you still have money in your old employer's plan. You may want to consider rolling roll your plan balance into an IRA.
- You're looking for more ways to save on taxes. You may be able to lower your taxable income by putting money in a traditional IRA.
- You want to save more for retirement. Maybe you don't have a workplace retirement plan. Or, perhaps you want to save more than you're allowed to in your employer's plan.
- You're nearing retirement. You may want to gather multiple retirement savings accounts into one so you can better manage your money in retirement.
Two Ways To Fund Your IRA
You can invest in an IRA through your bank or other financial institution. You can fund it directly or by rolling over money.
Annual contributions — You can put money in an IRA throughout the year or once a year. You have until April 15 to fund your account and get the tax benefits for the previous year.
Rollover or transfer — You can roll over assets from a former employer's plan or transfer assets from another IRA.
Keep in mind that the amount you can save in an IRA each year is limited by government regulations.