Before you can determine if you should open an IRA, it’s beneficial to know what an IRA account is, how an IRA account works and the types of IRA accounts available. So, let’s get started.
What is an IRA Account?
Simply stated, an IRA, or Individual Retirement Account, is a long-term investment vehicle with tax benefits used to help individuals save money for retirement, education, and other life events.
Do I need an IRA?
An IRA is a great way to save money for retirement and grow the balance long-term through diversified investments. It can be beneficial if you:
- Want to reduce taxable income
- Anticipate an increase in your earnings before retirement
- Assume you’ll be in a lower tax bracket at retirement age
- Want to help fund your retirement account and plan for your future
How Much Does It Cost to Open an IRA?
Once you decide you need an IRA and it’s the right choice to help meet your retirement goals, the next question is typically, how much does it cost to open an IRA? Good news! It doesn’t cost anything to open an IRA but you will need to fund the account when you open it. At Jovia, you can fund an IRA with as little as $100.
When should I Open an IRA?
The exact time to open an IRA will be different for every individual. It is a personal choice based on your current financial situation and long-term aspirations. Whether you’re new to the workforce, a young professional, mid-career, raising a family, approaching retirement, catching up on saving for retirement, or you’ve been saving for years – it’s a good idea to start as soon as you can comfortably afford to do so. Remember, IRA accounts grow over time through annual contributions and interest earnings, so starting early and funding consistently can help you achieve your retirement goals.
What Type of IRA Should I Open?
At Jovia, we offer three types of IRA accounts. Although each type of IRA is similar in how it performs, there are different age, income, employment, and tax requirements for each. With most IRAs you can:
- Contribute up to $6,000, increasing to $7,000 at age 50
- No age limit on making contributions
- Withdraw without penalty at 59-1/2
Let’s break it down.
Contributions to a traditional IRA use pre-taxed money and reduce your taxable income. The pre-taxed money invested may lower the amount of income tax you owe each year. The account grows by making annual contributions that remain untaxed until withdrawn after you turn 59-1/2. You can continue to withdraw your money after you turn 59-1/2 without penalty. A traditional IRA does not have an income requirement so you can contribute no matter what you earn annually, up to the maximum contribution limit.
Contributions to a Roth IRA are made with post-tax money. So, unlike a traditional IRA, you cannot deduct the contribution on your tax return, however, withdrawals are not taxed in retirement. Tax-free withdrawals can be made starting at age 59-1/2, and if you don’t need the money, the funds can remain in the account regardless of your age. Individuals contributing to a Roth IRA must meet certain income thresholds.
An education IRA is a tax-deferred savings plan used by parents and guardians of children ages 18 and under, to set aside money for the child’s education. The funds are withdrawn tax-free for tuition, books, uniforms, and other educational expenses.
IRAs are a secure way to help fund your retirement no matter which type of IRA you decide is best for you. We recommend you speak with your tax advisor to learn more about which IRA account is best for you.