Sometimes, understanding the complexities of retirement accounts can seem daunting, especially those that involve opening one on your own without having anyone explain to you exactly what they are. Let’s talk about a retirement account that you can open up on your own without the need of having to be walked through it. Yes, we’re talking about the Individual Retirement Account, otherwise known as an IRA.
What Are They?
Putting it simply, an IRA is an account where you can save up money for retirement without having to worry about taxes. The great thing about them is that they’re incredibly easy to open since they involve little hassle or paperwork. In fact, all you need is taxable income! Once you’ve opened one up with us, you’ll have the opportunity to put funds within it with investments, such as index funds, bonds, mutual funds or any other type of stock.
The Ins and Outs
The tax benefits that come with IRAs are very popular since the money placed into them can be deducted from your taxable income for that year, which, in return, lowers the chance of running into any sort of tax problem. What you put into the IRA will grow throughout the years without being taxed. Your IRA’s funds won’t be taxed until you decide to withdraw the money for retirement.
Contribution Limits
As of 2017, the contribution limit for an IRA is $5,500 if you’re under 50 and $6,500 if over. While these amounts might seem lower than what’s allowed for a 401(k), it’s still better than nothing, especially if you don’t have access to your 401(k) plan. Another important factor to keep in mind is that if you own more than one IRA, there’s a limit to the amount you’re allowed to contribute. It’s important to keep track of how much you’re investing since you could be hit with a penalty.
Tax Deductions
Your adjusted gross income and access to an employee-sponsored retirement account are the biggest factors that decide whether or not you’re eligible for the full IRA taxable amount. If your employer does not offer a retirement plan, you’ll most likely be allowed to deduct the full amount of $5,500 in IRA contributions. If your employer does, then your IRA might not be fully deductible. For example, if your employer offers a 401(k) plan but, for some reason, you’re more interested in opening a personal IRA to have a little more control, this means you’ll not be able to deduct the full $5,500 IRA contribution for the year.
Be Financially Secure with VFCU
Retirement can be confusing and daunting, especially when there are so many options out there. Which one should you choose? Which one is best for you? If you haven’t started saving for retirement, we encourage you to do so today. The sooner you start, the less you’ll have to contribute monthly to live comfortably later on. Visit our credit union in Harlingen today to learn the benefits of IRAs in greater detail!
