Less than half of households ages 55 to 64 have retirement savings, and of those, half have less than $120,000.1 The overall trend of Americans not properly saving for the future in combination with the uncertainty of future Social Security payouts, retirement saving is now more important than ever.
IRA stands for Individual Retirement Account, which is an ideal savings account to have in order to save up for retirement. IRAs often come with tax breaks and offer higher than average interest rates. Two of the primary types of IRA accounts are Traditional and Roth IRAs.
A Traditional IRA may allow you to deduct at least part of your contributions, but requires you to pay income tax on money you withdraw in retirement. You may be penalized for withrawing before age 59 1/2, but you must start making withdrawals called "required minimum distributions" after you reach age 70 ½, and you can no longer make contributions after you have turned 70 ½. The benefit of this account is that you do not pay taxes on your contributions until after retirement, and you are able to gain compound interest on your contributions, allowing your savings to grow much faster than a taxable account.2
With a Roth IRA, there is no up-front tax break, but you don't have to pay tax on withdrawals in retirement. This account is funded with after-tax dollars, meaning you’ve already paid taxes on the money you put into it. You can continue to contribute to this account even after retirement and leave your money untouched for as long as you like. Both accounts allow investments within them to grow without getting clipped by taxes each year.
Although it is never too late to begin saving for retirement, starting early is most advantageous. The more time you have an IRA, the more time there is to build compounding interest. If you are just beginning your career, think about building your retirement savings at the same time.
For more information about IRAs and which option is right for you, give us a call or stop by one of our branches to speak with a Financial Center Manager.