Some people dream of retirement as being able to lounge on a beach with no worries of time or money. Others dream of retirement as a big travel expenditure, hopping from one country to the next. Others want to live comfortably near family and friends and making new memories. Whatever your dreams for retirement are, it’s never too early to start planning or saving for yours.
What is an IRA?
An IRA, or individual retirement account, allows an individual to save for retirement without having to worry about taxes. It’s similar to a savings account, but with tax breaks that can assist in accumulating more cash for your retirement. Unlike 401(k)s, which are provided by your company, IRAs are opened by individuals. There are various types of IRAs, but the most common are traditional IRAs and Roth IRAs. Choosing the best one for you depends on your eligibility, which itself depends on your income and employment status.
The tax benefits that come with IRAs are very popular since the money placed in them can be deducted from your taxable income for that year, which, in turn, lowers the chance of running into any sort of tax problem. What you put into an IRA will grow throughout the years without being taxed. Your IRA’s funds won’t be taxed until you decide to withdraw money for retirement.
The current 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 a 401(k) plan. Also keep in mind 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.
Which One is Right for You?
With traditional IRAs, no taxes are charged until you withdraw money from your account when you retire. They offer a tax-deferred growth potential with contributions being eligible for tax deduction. There are also penalties for withdrawals taken prior to age 59 ½, with exceptions. A Roth IRA is the exact opposite. You pay it with taxed money, therefore, your investment earnings are tax-free after certain conditions are met.
Open Your IRA with VFCU
The advantage of opening an IRA with us is that all you’ll need is taxable income with little hassle or paperwork. Once you’ve opened one up with us, you’ll have the opportunity to put funds within it with investments, such as index foods, bonds, mutual funds or any other type of stock. Contact our credit union in Harlingen today for more information.