At some point, we all stop working and retire. While this may feel far away, it’s not too early to start planning your financial future. Unfortunately, most Americans aren't as prepared as they should be for retirement. As a result, many of us will find ourselves working longer than previous generations.
There are a lot of options available to help you set aside funds. One great way to save for retirement is by opening an Individual Retirement Account, or IRA.
What is an IRA?
An IRA is a savings account with tax benefits aimed at helping you save for retirement. Within the account, income from interest, dividends and capital gains compound each year without being taxed. An IRA is subject to special tax advantages. Once you set up an IRA, you can invest the funds into CDs, money market funds, mutual funds or individual stocks and bonds.
However, before you open an IRA, make sure you have a good understanding of your finances and how well prepared you are for retirement.
Questions to think about:
- When I retire, how much money will I need on a monthly and yearly basis? For a general idea, take a look at our How Much Do I Need To Retire? blog post.
- How much money do I plan on receiving from Social Security?
- How much am I saving for retirement in other ways, including my 401(k) or other savings plans?
- How much more money do I need to set aside to meet my lifestyle goals?
I’d like to open an IRA. What are my options?
There are 11 different types of IRAs. Each one comes with their own set of rules and restrictions. The two most common types are the Roth IRA and Traditional IRA.
The main difference between a Roth IRA and a Traditional IRA is in the way they are taxed. With a Roth IRA, you pay taxes when you first put money into the account and do not have to pay taxes when you withdraw the money in retirement. The money invested in Traditional IRAs is not taxed when first invested but is subject to tax when funds are withdrawn.
Click here to learn more about both types.
Which IRA is best for you?
Individual retirement situations vary greatly. The best option for you depends on your current age, circumstances, income levels, and long-term goals.
We can help! To learn more about IRAs or to set up an account, contact your local Washington Federal representative today!