Retirement; it’s the long awaited phase in life where we are finally allowed to sit back and pretty much do whatever we want. For a lot of us though, in the here and now, it’s hard to imagine ever reaching it. Nevertheless, not forcing ourselves to give it some thought while we’re working could result in a not so ideal retirement.
Did you know that, today, nearly one-third of Americans have absolutely no retirement savings? Furthermore, nearly one-third of Americans 65+ plus rely on Social Security, friends, family, or charity for financial support in retirement.
With this in mind, if you’re looking for greater financial security in your future, why not consider an IRA?
What is an IRA?
IRAs, or “Individual Retirement Accounts,” allow individuals saving for retirement to put savings away in a tax-free or tax-deductible manner. Two main IRA options to note include Roth and traditional IRAs.
Traditional IRA Basics
A traditional IRA is tax-deferred meaning you pay taxes on your money only when making withdrawals in retirement. With taxation deferred, dividends are allowed to compound yearly without the imposition of taxation. So, this will allow your IRA to grow faster. However, upon withdrawal, contributions and earnings are subject to taxation.
Roth IRA Basics
A Roth IRA is completely tax free. This is because Roth IRAs only allow for contributions that have already been subject to taxation. So, once you have paid taxes and contributed your money, it is allowed to grow tax free and will be withdrawn without any taxation as well.
Compare and Contrast Here:
To qualify, you must have earned income. Earned income consists of wages as reported on a W-2, tips, self-employment income from a business or farm, and alimony. Other taxable but unearned income, such as dividends and interest income, do not count toward this eligibility requirement.
In regards to Traditional IRAs, with earned income, opening and contributing to an account is allowed at any age up to 70 and ½.
Roth IRAs allow for those with earned income to contribute at any age without the 70 and ½ age limit.
Opening an IRA
With these two qualifications in mind, all that’s left to do is visit your closest OECU branch to get started! Check out our rates here.
If you’re worried about forgetting to contribute, don’t fear. At OECU, we’ve got you covered with direct deposit and payroll deduction allowing you to take one reminder off your to-do list.
We hope that this breakdown of IRAs has given you some valuable information for your retirement goals, and remember, it’s never too early to start saving for retirement.
See a tax advisor for information about the tax implications of IRAs.
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