So, your employer offers a 401K or Retirement Plan as part of your benefits package. Wonderful! We encourage everyone to take full advantage of one of the most common ways to invest in retirement. But what about those who don’t have access to an employer sponsored plan? Or what if your employer plan is not equipped to meet your retirement goals? What retirement options are there for those who own a small business or are self-employed?
An Individual Retirement Account, or IRA, can provide a simple solution to these questions and more. An IRA is a type of investment account with tax benefits that can help you save for retirement. Sadly, it may be one of the most under-utilized savings options available to the middle aged, working class American. When you are in your 20’s, 30’s and even 40’s, retirement feels lightyears away. Traditionally, during these stages of life, paychecks are dedicated to car payments, a mortgage, student loans and raising a family. This leaves thoughts of savings and retirement plans on hold.
On the upside, putting an IRA to work for you requires a little investment and even less time, but has the power to pay off in the future. IRA’s can be opened at most financial institutions through a process similar to opening a savings account. There is no minimum opening balance and setting up a direct deposit from your payroll to your new IRA will get your savings plan off to a successful start.
Who can open an IRA?
Anyone with earned income, which is income from a job that is claimed for tax purposes, not investment income or Social Security can open an IRA Account.
When should you start?
There is no minimum age to opening an IRA, but if you can start contributing to an IRA as soon as you get your first job, you would be off to a great start. If it is too late for that, now would be a great time to begin securing your financial future. The longer your money is invested, the more you can harness the power of your contributions.
How much can you contribute?
The annual contribution limit for an IRA is $6,500 for 2023, and $7,500 for savers over 50 years old. In 2024, the contribution will increase to $7,000 and $8,000 for those over 50 years of age.
How does the tax benefit work?
The specific tax benefit depends on the type of IRA you choose: Roth or Traditional.
What is the difference between Roth and Traditional Accounts?
- A traditional IRA offers a tax deduction for the tax year in which the contribution was made.
- A Roth IRA gives investors the chance to invest money after taxes and then take the contributions and earnings out tax-free in retirement. As long as you wait until you’re 59 1/2
years old to withdraw funds, earnings will not be taxed.
Have more questions?
Feel free to contact a Dakotaland Federal Credit Union Member Services Representative at 800-440-6573 or stop by any one of our convenient branch locations near you.
