What is an IRA?
The term “IRA” seems to be a financial buzzword these days. But what is an IRA and how can help you on your personal finance journey?
IRA stands for Individual Retirement Account. IRAs are tax-advantaged accounts that allow individuals to save for retirement outside of their employers retirement plans (such as a 401(k), 403(b), or 457(b).)
Opening an IRA might be a good idea if:
You’ve maxed out your employer’s plan or maximum match
You don’t have access to an employer-based plan
You want access to a wider variety of investment options
You think a 401(k) might not be enough in retirement
You are eligible (making less than $139,000 as an individual and less than $206,000 as a married couple)
There are different types of IRAs, each with their own benefits, the Traditional IRA and the Roth IRA. When choosing an account to open, ask yourself do you want to pay the taxes now or later?
What is the difference between a ROTH IRA and Traditional IRA?
With a Roth IRA, you contribute money you’ve already paid taxes on. However, your contributions grow, tax-free and you can make tax-free withdrawals in retirement.
With a Traditional IRA, no taxes are paid upfront. However, you will have to pay taxes when you withdraw the money during retirement.
IRAs, like other retirement accounts, come with contribution limits. You can contribute up to $6,000 per year into your IRA if you are under the age of 50. You can contribute $7,000 per year if you are 50 or older.
How to Open an IRA
Have you decided if an IRA is the right investment account for you? If so, follow these three simple steps to open your retirement account:
Find an investment company. There are tons of discount and affordable options out there! Some popular ones include Vanguard, Fidelity, Ally, etc. Be sure to do your research! Ask questions like "is there a fee to open or maintain this account?"