What is an IRA?
An Individual Retirement Account is an account that allows you to save money for retirement. IRAs are available to most people. The money you save grows tax deferred, meaning you will not have to pay taxes until you retire and withdraw money from the account. An IRA is a great way to save for retirement because of the flexibility in making contributions and the wide range of investments that are available. Just like most retirement accounts, what your money is invested in is determined by you.
How can an IRA help me?
A traditional IRA can be a powerful tool for retirement savings. Here is an example:
John earned $30,000 every year since he was 25, but John understood the power of compound interest and an IRA. In John’s world, the tax on $25,000 was 10% and the tax on $30,000 was 14%. John invested $5,000 in his Traditional IRA every year until he was 65. During this time, John received 7% interest every year. Here is the outcome: John saved $68,000 in taxes, and his IRA accumulated over $1,000,000.
The above story simply serves as an example and is not intended to be tax or legal advice, although we do recommend speaking with an independent professional advisor on tax, legal, and investment advice to see how an IRA could work in your interest.
How much can I contribute to an IRA?
That actually depends on your age. Currently, the federal limits on an IRA are $5,500 for those up to age 49, and $6,500 for those 50 and older.
There is also an income limit for IRA benefits. If you make over $133,000 and you are single, you may be ineligible for IRA benefits. If you make over $196,000 and you are married, you may be ineligible for IRA benefits.
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