Your Individual Retirement Plan
Your retirement is important, and so is the vehicle you use to save for it. Whether it’s tax deferred growth, tax-free withdraws, or a balance of both, determining the correct financial vehicles for your retirement nest egg is a crucial step in planning a successful retirement. Read below to learn more.
An IRA can make saving for Retirement less taxing.
Use an IRA to start saving for retirement or to supplement and help diversify savings you may have in other retirement accounts.
Save on your taxes now with a deduction, or save later with a tax-free withdrawal—it depends on the type of IRA you choose. And in between now and later, let your earnings grow tax deferred.
What is an IRA?
An IRA (individual retirement account) is a personal, tax-deferred account the IRS created to give investors an easy way to save for retirement.
What is does
It provides an excellent opportunity for your retirement money to grow and compound faster than it would in a taxable account.
What you can do
You can open an IRA on your own through almost any bank, brokerage company, insurance firm, or investment company.
And you can save your way for your retirement through the wide variety of investment choices that an IRA offers.
A Traditional IRA for postponing taxes.
Want to put off your tax bill while you put away money for your retirement? A traditional IRA maybe right for you.
A traditional IRA is a type of individual retirement account that lets your earnings grow tax-deferred. You pay taxes on your investment gains only when you make withdrawals in retirement. Withdraws maybe subject to federal income tax and any withdraws taken before age 59 1/2 may be subject to a 10% penalty.
If you’re not covered by a retirement plan at work, you can deduct the entire amount of your IRA contribution (up to $5,500 annually, or $6,500 if you’re 50 or older) on your income tax return. If you are covered by a retirement plan, your income will dictate whether or not your contribution is deductible.
There’s no maximum income limit. You can invest in a traditional IRA no matter how much money you earn.
Required Minimum Distribution
You must begin taking required minimum distributions (RMDs) from your account by April 1 of the calendar year following the year you reach age 70½.
You can’t make contributions to an IRA after age 70 1/2.
A Roth IRA for tax-free withdraws
With a Roth IRA, you get a future bonus: Every penny you withdraw in retirement stays in your pocket, not Uncle Sam’s.
A Roth IRA is an individual retirement account that offers tax-free growth and tax-free withdrawals in retirement. Roth IRA rules dictate that as long as you’ve owned your account for 5 years* and you’re age 59½ or older, you can withdraw your money when you want to and you won’t owe any federal taxes.
You can contribute the annual maximum amount (in 2015, that’s $5,500, or $6,500 if you’re age 50 or older) even if you’re covered by an employer retirement plan such as a 401(k) or a 403(b). (Some restrictions may apply.)
Contributions are non-deductible.
Contributions to a Roth IRA don’t have to stop when you reach age 70½, the cut-off for a traditional IRA. You can put money in your account for as many years as you want, as long as you have earned income that qualifies.
Contributions may be limited by how much you earn—your modified adjusted gross income (MAGI) must be less than the annual limit set by the IRS.