An individual retirement account (IRA) allows you to save money for retirement in a tax-advantaged way.
An IRA is an account set up at a financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis. The 3 main types of IRAs each have different advantages:
Traditional IRA – You make contributions with money you may be able to deduct on your federal tax return, and any earnings can grow tax-deferred until you withdraw them in retirement. Many retirees find themselves in a lower tax bracket than they were in pre-retirement, so the tax-deferral means the withdrawn money may be taxed at a lower rate.
Roth IRA – You make contributions with money you’ve already paid taxes on (after-tax), and your money grows tax-free, with tax-free withdrawals in retirement, provided that certain conditions are met.
Rollover IRA – You contribute money “rolled over” from a qualified retirement plan into this traditional IRA. Rollovers involve moving eligible assets from an employer-sponsored plan, such as a 401(k) or 403(b), into an IRA.
Whether you choose a traditional or Roth IRA, the tax benefits allow your savings to grow, or compound, more quickly than in a taxable account. Our Roth vs. Traditional IRA.
Why invest in an IRA?
Many financial experts estimate that you may need up to 85% of your pre-retirement income in retirement. An employer-sponsored savings plan, such as a 401(k), might not be enough to accumulate the savings you need. Fortunately, you can contribute to both a 401(k) and an IRA. An IRA can help you:
- Supplement your current savings in your employer-sponsored retirement plan.
- Gain access to a potentially wider range of investment choices than your employer-sponsored plan.
- Take advantage of tax-deferred or tax-free growth.
Did you know there are many tax benefits to opening an IRA account such as possible tax deductions on your contribution and; investment earnings that are tax deferred or tax free. Even if you have a retirement plan through your employer, you can still have a traditions or Roth IRA account that will enable you to take advantage of all of the additional tax benefits it provides.
You should try to contribute the maximum amount to your IRA each year to get the most out of these savings. Be sure to monitor your investments and make adjustments as needed, especially as retirement nears and your goals change. The IRS has extended the filing deadline for 2020 taxes until May 17, 2021 ( residents of Texas, Oklahoma, and Louisiana have until June 15, 2021). Talk with a members service representative today for more information at 888-777-9982. Patriot is here to help with all your IRA needs!