Planning To Secure Your Future? Here’s How Opening An IRA Can Help

Have you pictured your retirement yet? Most probably, your answer is yes. Your retirement years are supposed to be the best years of your life. You are over with most of your responsibilities and it is finally time to relax and visit places. Every individual picture their ideal life after retirement and why not? You have worked all your life to finally enjoy the perks of being old.

But are you prepared enough to have a comfortable retirement? That’s the question you must ask yourself if you are not sure about your answer to the questions above. And if you are saving up already, there are certain steps you can take to save money on taxes while preparing for your retirement.

How Will Opening An IRA Help?

If you are saving a part of your income for your retirement, the smartest thing to do is to open an IRA. An IRA (Individual Retirement Account) or your 401(k), is a tax-advantaged account which helps you save money on taxes. It leaves you with more money at your end which in turn implies you can have greater savings for your retirement.

There are two major types of IRAs. So let’s understand how they allow you to save for your retirement and to help you decide which one to open one for your retirement savings:

The Traditional IRA

Anyone who reports their earned income and does not get a 401(k) plan from their employer can opt for the traditional IRA. A traditional IRA allows individuals to save up to $6000 per year. The amount was $5500 in the previous year and is expected to go up to $7000 this year. Since this amount is tax deductible, it allows individuals to directly save for their retirement.

Your savings in the form of investments in the traditional IRAs are not taxed, until and unless you withdraw that money. If you enter the lower tax group in the later years, you can further enjoy tax benefits.

Roth IRA

The Roth IRA is the opposite of the traditional one. Unlike the traditional IRA, the investments in the Roth IRA are taxed up front and the investors can withdraw their savings along with the investment gains at retirement, completely tax-free. Individuals under the age of 50 can contribute up to $6000 into their Roth IRA and those above 50 can invest up to $7000 this year.

But the Roth IRA has certain limits. Single and joint filers, making more than $137,000 and $203,000 respectively, do not qualify to invest in a Roth IRA.

So, Which One Is Best For You?

Since both the options have an associated tax advantage, opting one out the two can be a tough choice to make. To make things easier there is good news: you can choose to invest in both. There is no obligation, whatsoever, to choose only one type of IRA. All you need is to know if you qualify for the two.

There is always uncertainty about your income and tax bracket in the later years of life, so saving up when possible is the best thing to do. However, if your employer already offers you a 401(k) plan, you can opt out of the traditional IRA since both make tax deductions up front.  

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