Whether you are just beginning to save for retirement or you already have a retirement plan in place — an Individual Retirement Account (IRA) can be a smart and easy way to save as part of your overall retirement plan.
IRAs combine two powerful forces — compounded interest and tax-deferred interest — and are available in a variety of forms:
- Traditional IRAs allow your investment earnings to grow tax-deferred, so you pay taxes only when you withdraw funds. Plus, contributions made to your Traditional IRA may be tax deductible in the year they are made.
- Roth IRAs allow your investment earnings to grow tax-deferred, and all withdrawals are federal income tax and penalty-free, including earnings — assuming you are over 59 1/2 years old and your account has been open for at least five tax years when you make your withdrawals. Unlike Traditional IRAs, not everyone qualifies for a Roth, and contributions to Roth IRAs are never deductible.
- SEP and SIMPLE Retirement Plans are low-cost retirement plans for small businesses and the self-employed. If you are a small business owner, these types of IRAs may be right for you.
Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 may results in a 10% IRS penalty tax. Future tax laws can change at anytime and may impact the benefits of Roth IRAs. Their tax treatment may change.
Consult your tax advisor for information on tax implications of IRAs.