It can be all too easy to put off getting your financial ducks in a row for retirement, especially if your perceived retirement is decades away.
However, saving in an Individual Retirement Account (IRA) can provide you with potential tax benefits while you’re building a nest egg for the future.
Money can be placed into an IRA even if you’re already participating in an employer-sponsored 401(k) retirement plan. Further, you may be able to deduct the IRA contributions from your taxable income, which may reduce your overall income tax bill.
Why should you consider an IRA when you are planning for your future?
1. Significant tax advantages are potentially available.
IRAs come in two different forms: Traditional and Roth.
With a traditional IRA, all contributions are pre-tax and reduce the current year’s income by the amount of your contribution. When you take the money out of retirement, you pay ordinary income tax on your withdrawals.
The newer form is the Roth. With this plan, you cannot take a deduction for your contributions and you must pay tax on the amount invested now. However, after retirement, you can withdraw the money tax-free.
Determining which plan is better depends on when you want to be accountable for paying the taxes. If saving on taxes now is a good motivation for you to make contributions, then a traditional IRA would be recommended. If however, you are more motivated by knowing your IRA retirement income – including earnings on your contributions – will be tax-free during your retirement years, then the Roth makes more sense. Either way, the best IRA, is the one you consistently contribute to.
2. You are in control of your IRA.
Even if you have a 401(k) or similar plan at work, investing in an IRA is a good idea. With the account held in your name, you have more flexibility and control. If you change jobs, it’s not affected.
Another reason you may want an IRA is to roll over and consolidate old retirement accounts. For example, if you have old 401(k) or similar plans at places you used to work, you can roll them over into your IRA.
You can make an IRA contribution for a given year anytime between January 1 and the tax-filing deadline of the following year (usually April 15). You may be eligible for a nonrefundable tax credit of up to 50% of your IRA contribution, not exceeding $1,000, depending on your adjusted gross income and tax-filing status. You may also qualify to make “catch-up” contributions for past years.
So yes, there is still time!
Planning for retirement is key to having financial success in your golden years. We are proud to provide Traditional and Roth IRAs to help our members prepare for their retirement.
If you would like to talk to someone about opening an IRA account, contact us here.