Are you saving for your retirement? Do you have a pension or a 401k through your place of employment? What strategies and goals are you working on to ensure that you are ready to retire when the time comes? Whether you already have a pension, 401k or other type of retirement savings plan through your job, it’s a good idea to look into investing into an IRA to boost your savings.
What is an IRA?
An IRA is an Individual Retirement Account. It is a type of retirement savings plan that is available through a financial institution, such as your local credit union in New Bedford. Certain tax advantages are also available through investment in an IRA. There are a couple of different types of IRAs available to individuals:
- Traditional IRA – Also referred to as a deductible IRA or a non-deductible IRA, depending on the type of contribution, most earnings or transactions within the IRA have no impact on the account holder’s taxes. However, withdrawals at the time of retirement are later taxed as income as part of the Tax Reform Act of 1986.
- SEP IRA – A type of IRA for individuals who are self-employed or part of a small business. The account is established as a Traditional IRA in the employees name as an alternative to a pension fund, which would be in the name of the company.
- Self-Directed IRA – This type of IRA allows the account holder to make investments on their own into the retirement savings plan.
- Roth IRA – Introduced in the Taxpayer Relief Act of 1997, contributions made to a Roth IRA are made with “after-tax” assets, so all transactions have no impact on the account holder’s taxes and withdrawals are generally tax-free.
How Does an IRA Work?
Similar to a 401k plan, investors in an IRA plan aren’t required to pay taxes on any dividends, capital gains or other distributions that come from securities held in the account. There are different tax advantages to each type of IRA account, depending on your needs and ability to invest.
Depending on certain variables, you might qualify for a deductible or a non-deductible Traditional IRA. Some of the criteria involved in the qualification process includes your age, whether you have a retirement savings plan at work or not, if you have a 401k, your annual income and whether or not your spouse is covered by a retirement plan. Speak with your local representative at your credit union in New Bedford to find out what type of IRA would be best for your particular situation.
If you are not eligible to participate in a deductible IRA, you might be able to contribute to a Roth IRA to enjoy the available tax savings opportunities. Currently, you must have an adjusted gross income of under $125,000 if you are unmarried or $183,000 if you are married and file your taxes jointly. Contributors over the age of 50 can contribute a maximum of $5,000 each year.
Investors who make too much money to qualify for the Roth IRA tax savings plan and are not eligible to invest into a deductible IRA can opt to invest in a non-deductible IRA. While your contributions into this plan won’t be tax deductible, the savings that you grow through this plan will still be tax-deferred.
Choosing an IRA in New Bedford
So which plan is best for you and your retirement strategy? Which plan do you qualify for and which plan will help you to earn the most money for your retirement? If you already have a Traditional IRA, and anticipate being in a higher tax bracket when you retire, you might want to convert it to a Roth, especially if you are making non-deductible contributions.
Speak with your representative at your New Bedford credit union, but overall the Roth IRA plan will offer you more flexibility. The Roth does not require mandatory withdrawals at age 70.5 as other IRAs do. There are also more opportunities for withdrawing your money penalty-free with a Roth IRA if you need your money prior to retirement.
Opportunities Available Through St. Anne Credit Union in New Bedford
Currently St. Anne Credit Union in New Bedford, Massachusetts offers two IRA savings plan options to its members. Credit union members can choose between the IRA Certificates of Deposit (CD) plan or the IRA Share Account.
Currently a minimum balance of $500 is required to open an IRA Share Account with St. Anne Credit Union. The interest rate available through St. Anne is based upon the number of years the money will be invested and the type of IRA retirement savings plan that is chosen. Speak with your representative for more information on how to start your own IRA in New Bedford and start saving for your retirement.