I is for Individual Retirement Accounts (IRA) and What You Need to Know

I is for Individual Retirement Accounts (IRA) and What You Need to Know

By now, most of us are aware of the importance of saving and investing for retirement. And while most of us are aware of the different types of retirement accounts available to us. It can be difficult to know the best option and how to start saving. An IRA is typically a great option.

An Individual Retirement Account or an IRA is a retirement account designed for working people to save for their future. This is separate from their employer or their 401(k) account. Or a pension. There are two types of IRAs, traditional and Roth. 

In a Traditional IRA, you contribute pre or after-tax dollars. And your money grows tax-deferred, and withdrawals are taxed as current income after age 59½. A Roth IRA requires you to pay your taxes at your current rate as you add to your Roth retirement account. This allows your money to grow tax-free. If you know you will be taxed in a higher bracket later on, a Roth IRA may be a way for you to save more money as you can generally make tax and penalty-free withdrawals after age 59½.

There are annual limits for both types of IRAs as to how much you can contribute. 

You can contribute up to $6,000 per year if you are under 50 and up to $7,000 if you are 50 or over. This makes you eligible for an additional catch-up contribution. You must also have earned income to contribute, including your spouse’s income.

The most important thing you need to know about an IRA is that you should start saving today! Even if you are eligible for a 401(k) with your employer, it can be beneficial to open multiple retirement accounts. The sooner you start contributing money to your retirement account, the better. Talk with your financial advisor today to start making a plan for saving for your future.

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