What is an IRA?
Beginning to save for your future, at any stage in life, can help achieve your personal goals and milestones. Whether you’re just starting your career, or are a seasoned industry veteran, an individual retirement account (IRA) offers a tax-advantaged and personalized way to save for your future. Providing tax-free growth or growth on a tax-deferred basis, IRAs are set up by a trusted financial institution to save for retirement. There are three main types of IRAs, which have their own unique set of advantages:
- A Traditional IRA enables you to make contributions that can be deducted on your tax returns, allowing your earnings to grow tax-deferred until you’re prepared to withdraw your funds for retirement. Ultimately, this means that your money may be taxed at a lower rate due to the tax-deferral advantage. Remember, a Traditional IRA is a pre-tax contribution.
- Roth IRA contributions are made with money that has already been taxed (after-tax). Once contributed, your money can continue to grow or, in retirement, be withdrawn without being taxed. Remember, a Roth IRA is a post-tax contribution.
- Rollover IRAs utilize the money that is “rolled over” from a previous qualifying retirement plan, like a 401(k) or 403(b), and place it into an IRA
Ultimately, regardless of which type of IRA you select, the tax benefits provided allow your retirement savings to grow faster than a taxable account would.
What are the advantages of an IRA?
IRAs provide unique advantages to funding a healthy retirement. From the moment you open your account to when you begin withdrawing your retirement funds, IRAs empower financial growth. By making use of an IRA for retirement, you can leverage three advantages:
- IRAs are exclusive to you. With other accounts, such as a 401(k), you have significantly less input. By utilizing such accounts, you’re a participant and not an owner. This means that your employer is able to change your plan’s investment options without your permission. On the contrary, an IRA is yours to own and isn’t affected by your employer in the same way as a 401(k). With an IRA of your own, you can personalize your portfolio to meet your unique retirement needs.
- Traditional IRAs give you a tax break now. With the various IRAs offered, your path to retirement is completely up to you. Should you leverage a traditional IRA, you can invest more money upfront, allowing you to reduce your taxable income. In this route, you won’t pay taxes on your untaxed contributions until retirement, therefore taking advantage of tax breaks immediately.
- Roth IRAs give you a tax break in the future. Should you desire the flexibility of a tax break upon retirement, you can leverage a Roth IRA. This account allows you to make taxed contributions upfront, meaning that your withdrawals in retirement would not be taxed. This is a particularly advantageous way to compound tax-free funds over years of working.
Grow your retirement fund
The right financial guidance can help you achieve your long-term savings goal. Westfield Bank’s team of experienced banking professionals is here to provide you with a personalized roadmap to help achieve your financial goals. It’s never too early or too late to begin planning for retirement. Let’s start talking about your retirement today.