Regardless of where you are in your financial journey, an Individual Retirement Account (IRA) can be a tax-smart way to save for retirement. Whether you're just beginning your career, planning for a family, or approaching retirement, a Traditional or Roth IRA can help you achieve your goals, even if you have a traditional 401(k) already. Let's break down what an IRA is and the different types available so you can decide what works for you.
What is an IRA?
Most people have heard of 401(k)s, or retirement saving accounts. They are offered through employers. Individual Retirement Accounts (IRAs) are not. Instead, they can be opened by individuals through a credit union, broker, or bank.
You may be asking what an IRA can do for you even if you already have a 401(k). The simple answer is they may provide many tax benefits* and investment options to diversify your portfolio. First, it's important to understand the distinctions between the different types of IRAs since each has its own withdrawal, contribution, and tax rules. For specific advice, consult with a reputable tax advisor.
A Traditional IRA allows you to take money you've earned and put it toward investments that grow tax deferred. This means the income contributed to your IRA won't be taxed until you start withdrawing funds. You won't have to pay capital gains or dividend income, either. In addition, the contributions you make to a Traditional IRA may be tax-deductible, depending on your income, tax filing status and other factors.
Eligibility: Any person who earns income, along with their spouse (if married filing jointly) can contribute to a Traditional IRA. Required minimum distributions begin at age 73. Members who reached age 72 prior to December 31, 2022, are still required to take their required minimum distribution the year they turn 72.
How Much Can you put in your Traditional IRA each year?
You can contribute 100% of any earned income up to the following limits: If you're under age 50, you can contribute up to $7,000 to your IRA in tax year 2024. If you're 50 or older, you can contribute up to $8,000. Contributions for the 2023 tax year are $6500 for those under age 50 and $7500 for those 50 or older and can still be made through April 15, 2024.
They offer tax deferred growth potential, and you may be able to deduct all or part of the money you put in.*
The main difference between a Roth and Traditional IRA is WHEN you get your tax break. With a Traditional IRA, you don't pay taxes on qualified tax deductible contributions until you withdraw, Roth IRAs are the opposite. Contributions are not tax deductible, but you can withdraw funds tax-free.
A Roth IRA may be a good choice if you'd rather pay taxes as you go and be able to take the money out tax-free when you retire*. If you expect to be in the same or a higher tax bracket in retirement, a Roth IRA could be right for you.
Roth IRAs also allow tax-free withdrawals* of earnings after a five-year holding period when certain requirements are met. Since the money you contribute has already been taxed, you may make tax-free and IRS penalty-free withdrawals at any time – as long as the amount withdrawn is less than or equal to the contributions already made.
Eligibility: Your ability to contribute and how much you can contribute is based on your tax filing status and your modified adjusted gross income.
How much can you put in your ROTH IRA each year?
Depending on household income qualifications, you can contribute 100% of any earned income up to the following limits: If you're under age 50, you can contribute up to $7,000 to your IRA in 2024. If you're 50 or older, you can contribute up to $8,000. Contributions for the 2023 tax year are $6500 for those under age 50 and $7500 for those 50 or older and can still be made through April 15, 2024.
Benefits: Because your contributions are taxed up front, your earnings grow tax-free, and you are NOT taxed on funds when you withdraw.*
If you have funds from a past employer-sponsored retirement plan, you may move them into an IRA. By rolling over your savings, you may be able to preserve the tax deferred status of your funds. This may save you from paying current taxes and avoiding early withdrawal penalties, depending on what type of IRA you choose.
How can I get started with opening an IRA?
Golden 1 offers an IRA savings account and IRA Term Savings Certificates that range from 3 months to 60 months. To open an IRA Certificate, visit our online IRA Service Center, print and complete the form, then bring it to any Golden 1 branch or mail it to us at the address provided on the form.
Looking for professional retirement planning or investment advice?
Consult with one of our helpful Financial Advisors1 for advice and specific investment options suited to your individual needs. We're happy to answer any financial questions you may have.
For more tips and details about retirement planning, explore the wealth of articles in our interactive Learning Lab and the educational podcasts and videos in our Financial Wellness Center.
*This information is for educational purposes only. It's not specific advice for your own finances. For specific advice, please consult your own tax professional, financial advisor, or attorney.
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