An Individual Retirement Account is a type of savings account designed to help you save for retirement while benefiting from tax advantages. These accounts are created to save for retirement based on tax-free growth or on a tax-deferred basis. A traditional IRA can be opened by anyone with earned income (no age restriction as of 2020). A Roth IRA can be opened by anyone with earned income, regardless of age, if their adjusted gross income is below IRA limits.
Your employer-sponsored savings plan is a great way to put aside additional funds, but it isn’t the only way. It also isn’t the best way if you want to accumulate enough savings to live stress-free throughout retirement. That’s why IRAs are important pieces to your retirement plan as they allow you to supplement your current savings and receive tax breaks specific to these savings accounts. As if that’s not enough to motivate you to plan ahead, a 2019 report from the Federal Reserve highlights the fact that 44% of non-retired adults don’t see themselves as on track for retirement. That’s a lot of people who aren’t ready to walk away from the job on time. We don’t want you to become another statistic–we’re here to help you avoid falling behind on your retirement plans. Open an IRA with SunWest and we can walk you through the tax benefits, provide higher return rates, and set you on the path of financial freedom. Start planning your retirement adventure now, and save yourself major financial distress down the road.
One of the first questions you’re going to hear from any advisor is: Traditional or Roth? The right choice for you depends on your tax preference and your projected tax bracket during retirement, as well as eligibility based on income. Although there is no crystal ball that can predict the future, a tax advisor can review your specific life situation and give advice based on what will provide you the best advantage. The hardest part is getting started.
Traditional IRAs allow you to fund with pre-tax dollars and can reduce taxable income for that contribution year. This means you get upfront tax breaks and pay taxes when you withdraw.
Immediate tax benefits –contributions lower your taxable income for that year
Best route if you think you’ll be in a lower tax bracket during retirement
Earnings grow tax-free
Contributions can be made with pre-tax or after-tax dollars
Withdrawals are taxed
$6,000 per year, $7,000 per year for ages 50+
Withdrawals made before age 59.5 are considered an early withdrawal and may be subject to an IRS 10% Early Withdrawal Penalty
Minimum Distribution Requirement kicks in the tax year you turn 72
Roth IRAs are a great option for those that expect to be in a higher tax bracket during retirement. The contributions going into a Roth have already been taxed, so your withdrawals in retirement typically are not.
Best route if you think you’ll be in a higher tax bracket come retirement
Contributions have already been taxed, so withdrawals are tax-free
No immediate tax benefit – does not lower yearly taxable income
Contribution eligibility is subject to your earned income
$6,000 per year, $7,000 per year for ages 50+
No Early Withdrawal Penalty if your Roth has been open for 5 years or if you are 59.5 years or older at the time of the withdrawal
Yes, as long as the total amount of your contribution does not exceed the maximum annual contribution requirements.
Once a distribution is taken from an IRA, you have 60 days from the time the funds are withdrawn to replace the funds and avoid any associated penalties or taxes. This type of rollover can only be done once every 365 days in a branch. Tax withholding is not returnable unless the transaction is cancelled on the same day.
