Everyone wants to save more but most people don’t really spend a lot of time strategically thinking about their options. A majority of my friends, including myself, spend more time finding out what movie star they look like on Facebook or picking their football teams in the office pool than learning about savings and retirement. It’s because savings is generally not that fascinating.
Take for example, Individual Retirement Accounts (please don’t yawn). There’s nothing spellbinding or captivating about IRA savings. However, supplementing your retirement funds could be exciting on the first day when you don’t have to set that alarm clock and make the normal drive to work. You have another nest egg set aside to rely on. Since I am inching toward 60, I find having additional retirement nest eggs very appealing.
Before investing money into IRAs, I first had to learn about IRA options. What are they, what are the differences, how do they help and are they right for you? Here are some of the products I considered, and what I found:
A Traditional Individual Retirement Account (IRA) can be a great choice when saving for retirement. With this account, earnings are tax-deferred and your contributions may be tax-deductible, potentially helping to reduce the amount of your taxed income. If you are under age 70 ½ and have earned income, you are eligible to contribute to this account. You may also qualify to contribute if you file a joint tax return with a spouse who has earned income. Starting at age 70 ½, required minimum distributions (RMDs) must be withdrawn from this account every year.
The biggest takeaway for me about retirement options was that contributions to a Roth IRA are not tax-deductible. However the biggest advantage, you can withdraw the money you contribute tax-free. You may even be able to withdraw the earnings tax-free, too. This is important to know if you are ineligible to contribute to a Traditional IRA because of the age limit.
Traditional and Roth IRA comparison
In 2019, the annual contribution limit to an IRA is $6,000, or $7,000 if you are age 50 or older. Remember, a Traditional IRA may provide tax-deductible contributions and a Roth IRAs do not require minimum distributions once you turn 70 ½.
For further information regarding Individual Retirement Accounts, please consult with a tax advisor or refer to the Internal Revenue Service Publication 590 or www.irs.gov.
*This post is meant to be informational in nature and is not intended to be investment advice. This information does not consider the specific investment objectives, financials situations or needs of any specific individual who may read this post.