What is an IRA?
This is a way for you to pay for your retirement. Plus, the earnings of the account grow tax-deferred (Traditional IRA) or tax-free (Roth IRA) until withdrawn. 2. What kinds of IRAs does First National Bank offer? We offer both a Traditional IRA product and the Roth IRA product. Contributions to a Traditional IRA may be deductible; earnings are tax-deferred and withdrawals are taxable at retirement. The Roth IRA does not allow deductible contributions, but earnings are tax-free and if held for five years or more, making withdrawals at retirement is tax-free.
An IRA is an Individual Retirement Account, and provides either a tax-deferred or tax-free way of saving for retirement. There are many different types of accounts within the world of IRAs, depending on the financial goals and situations of each individual, though traditional and Roth IRAs are the most common choices. A traditional IRA allows tax-deductible contributions of up to $4,000 per year, or more if you are over age 50. Whatever you contribute towards your IRA comes off your yearly income, thereby reducing total tax liability. However, once the money in an IRA is withdrawn, it is subject to standard income taxes and an additional 10% penalty if withdrawn before the age of 59 1/2. An exception is made if the money is used for purchasing a house or to cover approved higher education costs. Standard income tax still applies, but the ten percent penalty is waived. This provides a great investment tool with flexibility for important purchases. Roth IRAs were created in 1997 to help
If you’re a younger person, you know there are very few pensions out there and Social Security won’t be around to sustain you during the golden years. Yet a new report from the Investment Company Institute reveals that only a little more than 1 in 10 people will open an IRA in 2008. If you’re under age 40, there’s no way you’ll be able to retire unless you start saving now. The problem is that people don’t understand some of the basics about retirement planning. The AARP reports that just about half of Americans have no idea what an IRA is. Does it stand for the Irish Republican Army? No, it’s an individual retirement arrangement in IRSpeak — also known colloquially as an individual retirement account. There are so many kinds of IRAs that it’s easy to get confused. Here’s what you need to know: The average person is eligible for a Roth IRA — unless you’re bringing in more than $100K individually or $150K as a family. You can open an IRA and pop in as much as $5K this year. That money
Kristen the investment brokerage guru will have more to add, but let me give you these basics; IRA stands for Individual Retirement Account — it’s basically a way of saving money that was set up with certain tax advantages. There are different types, so you have some control over when you can reap the tax advantages. In a “traditional” IRA, for example, when you put money in the account, you can deduct that from this year’s income. Then, over time, the money grows — and you don’t pay tax on the interest. That’s a big advantage over a regular savings account! You do pay tax when you withdraw the money, but presumably by then you’re retired, and you’re making less money, so you’re taxed at a lower savings rate. In a Roth IRA, you get the tax advantage at a different time — you start the account with money that you’ve already paid taxes on, but withdrawals are usually tax free. What’s the catch? Well, usually there are restrictions on how you get the money back out — it’s meant to be
