Knowing that you need to save for retirement is just the first step toward a more secure future. Next, you need to decide how to save money. Your retirement account can confer various benefits, such as those associated with income taxes, so it’s important to choose it carefully. Read on to discover what an Individual Retirement Account has to offer.
Your employer does not offer a retirement plan. An Individual Retirement Account is not tied to your employer, and anyone can open and fund one. So, even if your job does not include the benefit of an employer-sponsored retirement plan, you can still plan for your future. As an added benefit, this means you take your retirement plan with you when you change employers.
You’re self-employed. The self-employed are another group who aren’t eligible for an employer-provided retirement account… unless, of course, they provide it for themselves! Several types of IRA are available for the self-employed, and you should discuss this options carefully with a financial planner before choosing one.
Save more for retirement. Perhaps you’re already investing the maximum allowable amounts into a 401(k) fund each year. Opening an IRA allows you to stash $5,500 more for retirement annually, or $6,500 if you’re over 50.
Access to investments. Typically, an IRA offers access to a wider variety of securities investments than other types of retirement accounts.
You can access your funds (in certain circumstances). It’s almost always better not to touch your retirement account until you actually retire. Having said that, there are circumstances in which you can tap into IRA funds before age 59 ½ without incurring a penalty.
You could enjoy tax-free income in retirement. If you choose a Roth IRA, you will fund the account with after-tax dollars. However, once you begin withdrawals in retirement, you won’t owe income taxes on that money.
For more information on opening and funding an IRA, give us a call. We can help you explore your options, and decide which type of IRA best suits your situation.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.