People are living longer than ever, which means retirements are lasting longer than ever. To make sure you have enough money, it’s important to start saving as soon as possible. One way to do that is with an Individual Retirement Account, or IRA.
The IRS limits how much you can invest in an IRA each year. If you’re younger than 50, you can invest up to $5,500 into an IRA. If you’re 50 or older, you can invest up to $6,500 a year.
When you add money to a Traditional IRA, you’ll get a tax deduction for your contribution. So, you’re saving money for the future while bringing down this year’s tax bill. The Roth IRA doesn’t offer a tax deduction for your contributions.
You can start making withdrawals without penalty from your IRA as soon as you turn 59 ½, even if you’re not working. When you take a withdrawal from a Traditional IRA, you’ll owe income tax on the withdrawal. With a Roth IRA, you already paid income tax on this money up front, so the withdrawal is tax-free. This means you’ll never have to pay income tax on your investment earnings if you are 59½ or older.
IRAs are retirement plans and that’s why the IRS wants you to use them for – at least until you turn 59½. If you want to take money out before then, it counts as an early withdrawal. The IRS charges an extra 10 percent penalty on early withdrawals which can destroy your investment return. While there are a few special situations when you can avoid the penalty, like paying for excess medical bills, and college expenses, generally once you put money in an IRA, you should try to keep it there until retirement.
BIQ Insurance Agency can help you set up Traditional and Roth IRA.