Saving for retirement has been a hot-button topic recently. According to a recent global study, nearly one in eight workers anticipates never being able to retire, and the figures for the U.S. are even worse with roughly 18% expected to never enter retirement, usually because they don’t have the funds saved away. Sometimes, people want to start preparing for the future, but are unsure how to go about the process and never get started. We want to help you get in the habit of saving for your golden years, so we want to explain one of the most common forms of retirement, and one of the easiest to get involved with: an IRA.
What is an IRA?
An IRA stands for an Individual Retirement Account. Unlike a 401(k) that is an account you get through the company you work for, an IRA is a savings account with big tax breaks that you open yourself. The thing about IRAs that make it different from a normal savings account in a potentially negative way is that there are many stipulations and rules on when you can withdraw money.
Traditional IRAs vs. Roth IRAs
The biggest difference between a traditional and a Roth IRA is when you pay income tax on the money you put in the account. With a traditional IRA, you pay taxes when the money is withdrawn, but you may not have to pay taxes when you put money in. With a Roth IRA, it’s the opposite; you’ll pay income tax when you put the money into the account, but not when you take it out during retirement.
There are some other differences, like flexibility if you needed to take money out of the account early and income limits for people contributing to a Roth IRA.
Why Should I Have an IRA?
Even if you’re putting money into your company’s 401(k), you should still consider building a savings in an IRA for a few different reasons. First, depending on the company you work for and the expense ratio of your plan, you may not be maximizing your saving possibilities by putting all your savings in one basket. Plus, you have the ability to tax diversify if you have both, particularly a Roth IRA. What if you maxed out your 401(k) and still have money to save? Putting that money into an IRA gives you even more opportunity to plan for retirement. If you’re interested in starting an IRA account, stop by FCU, as we offer IRA savings, IRA CDs and Roth IRAs.
How are you saving for retirement? Tell us about it in the comments below!
If you like this article, be sure to check out "Is There a Safe Way To Invest For Retirement?"