08 Feb IRA 101: What You Need to Know Before Investing
Are people always asking if you are saving up for retirement? Saving for retirement does not have to be a stressful and nagging process, even for the many people without a 401(k) plan. For full-time and part-time workers who are not covered by an employer’s plan or don’t have a retirement account at all, an individual retirement arrangement is the perfect solution.
An individual retirement arrangement, or IRA, is a savings account that enables a person to establish a fund to help them save for retirement while receiving tax benefits simultaneously. Essentially, an IRA is simply a place to preserve one’s stocks, mutual funds, bonds, and other assets.
There are several types of IRAs, but the two main types are:
1. Traditional IRAs
Traditional IRAs provide a tax deduction in the year the money is earned. To be eligible, you must be younger than 70 ½ years old. As long as you do not have access to a retirement plan at work, such as a 401(k), you are allowed to request for a full income-tax deduction. Also, you may have to pay an additional 10% tax if you withdraw any money before turning 59 ½ years old.
2. Roth IRAs
A Roth IRA is another special retirement account that is different than a traditional IRA because there is no up-front tax deduction. However, it is only tax-free when you follow the guidelines. After you pay the taxes on your funds you put into the account, your money will consistently grow tax-free. Then, all future withdrawals will be tax free once you reach your retirement age. To be eligible, you can be any age as long as you have a job where you earn an income. However, there is a certain income limit that prevents individuals who make too much money from being qualified for this account.
Even though there are going to be contribution and deduction limits when using IRAs, they will serve you very well if you’re eligible. Ultimately, an IRA is a beneficial account that can assist you with your retirement funds and goals.