Most of today’s workers understand that they will not be able to live comfortably in retirement with the money they receive in employer-sponsored pension plans or Social Security benefits. One of the many options available to save for retirement is an individual retirement account. An IRA is not an investment. It is an account that can hold a variety of investments. You can put stocks, mutual funds, bonds and certificates of deposit in IRAs.
The two main types of IRA Colusa residents can choose from are traditional and Roth. They both have unique advantages and disadvantages for account owners and should be chosen carefully based on current and future financial situations. When you choose a traditional IRA, you can deduct your contributions from your taxable income. The only income restriction for traditional IRAs is that you must have earned income to contribute. You must begin taking distributions from your IRA when you are between 59 1/2 and 70 1/2. When the money is withdrawn, it is taxed at the standard income tax rate at the time of disbursement.
The other common IRA is the Roth IRA. The main difference is that contributions are not tax-deductible. There are income restrictions for this account that do not exist with the traditional IRA. Another difference is that the contributed funds in the account can be withdrawn at anytime without penalty. An added benefit is that the funds never need to be withdrawn. The entire account can be included in an estate plan and passed on to your heirs if you don’t need the money for retirement.
When choosing an IRA Colusa workers must consider whether they will be in a higher or lower tax bracket when they retire. If their tax bracket will be higher in retirement, a Roth IRA makes sense because withdrawals are tax-free. However, if you are like many employees and expect to be in a lower tax bracket when you retire, it may be beneficial to grow your money tax-deferred in a traditional IRA. You will get a tax deduction while you are working and pay less income taxes on the money when you start taking disbursements in retirement. Click here to find out more.
