Which IRA Account to Open
Retirement is inevitable.
Every forward looking citizen should know that and should plan for retirement.
Financial experts have estimated that you may need up to 85% of your current income after you retire.
There is therefore need for an exit strategy and an IRA account offers you that opportunity.
What is an IRA Account?
Definition of IRA Account
An IRA account is an account that an individual sets up at a financial institution like a bank that allows them to save for retirement.
The IRA account usually offers a tax-free growth or a tax-deferred basis.
Types of IRA
There are several types of IRA accounts and an individual chooses based on their most preferred.
These are Traditional IRA, Roth IRA, Individual Retirement Annuity, Group IRA, Simplified Employee Pension IRA, Savings Incentive Matching Plan for Employers IRA, Spousal IRA, Rollover IRA, Inherited IRA and, Education IRA.
There are 2 basic types of IRA; Traditional IRA and Roth IRA.
Traditional IRA (Features)
-It is a vehicle that helps provide long-term financial stability and security to working individuals.
-Contributions may be tax deductible depending on the financial institution.
-Earnings on the account are usually tax deferred until you withdraw.
-You can only withdraw after the age of 70 1/2 is reached.
These withdrawals are called Required Minimum Distributions (RMD).
-There are no more contributions that are allowed after the age of 70 1/2.
-A portion of the withdrawal amount may be taxable.
-Withdrawals before reaching the age of 59 1/2 are penalized at 10% unless otherwise stated.
Roth IRA (Features)
-This is also a vehicle that helps provide long-term financial stability and security to working individuals
-There are no taxes charged on contributions.
-There are no taxes charged on withdrawals and withdraws are federally tax free after certain conditions are met.
-There is a tax free growth on earnings.
-There is no age limit to open an IRA account as opposed to the traditional IRA.
-There is no age limit to contribute to an IRA account.
You may continue making contributions to an IRA account after the age of 70 1/2.
-In this account you can take withdrawals of your contribution at any time without the risk of penalties or extra tax.
-Distributions are not mandatory unlike Traditional IRA where the owner of the account has to take RMD after a stated period.
Beneficiaries are however subject to minimum distribution rules.
It should be noted that each type of IRA is a saving plan that gives those who qualify certain tax advantage.
You can open an IRA account at banks, insurance companies and brokerage firms. Roth IRA proves to be more flexible.