IRA Savings Accounts

An IRA savings account is an ideal way for an individual to save for retirement. An IRA is an individual retirement arrangement, although it is often referred to as an individual retirement account. The main purpose is to allow individuals to contribute on an annual basis to their retirement savings, and in turn this will provide certain tax advantages as well.

There are two main types of IRA account, and these are the traditional and the Roth IRA, although there are a few other forms of IRA accounts, these two seem to be the most popular. Anyone who has earned income is able to open and begin contributing to an IRA. This is even true of minors, as long as they have earned income at some point in their life. The only exception is that an IRA must be established before a person has reached the age of 70 1/2.

The IRA savings limits will typically change every few years, and the current limit is $5000. However, once a person has reached the age of 50, they are able to contribute an additional $1,000 on an annual basis, which of course would allow them a total of $6000 in annual contributions. Investors should always planned to keep their money in an IRA savings account, as there are penalties for early withdrawal, and this is where an IRA will differ from a traditional savings account, as withdrawals will not be able to be made on a regular basis.

It is often said that individuals should open an IRA account as early as possible, and this is basically because there are certain benefits and these include:

  • The contributions will not be taxed until the money is withdrawn.
  • The earlier an individual start saving, the more money they would have saved their retirement.
  • The contributions to an IRA savings account will reduce income for tax purposes.
  • There are certain exceptions that will allow for early withdrawal, and therefore if an investor has an emergency they may still be able to have access to their funds.

IRA’s were originally thought of as a way for people, who didn’t have an employee sponsored 401(k) or 403(b) plans, to save their retirement. However, with that said, many people actually have work-related retirement plans and IRA’s, as this is a great way to build up additional retirement savings.

An IRA it will typically be set up through a bank or in some cases through a financial adviser or brokerage firm. It is even possible to open an IRA online by completing a simple application and making an initial deposit. Once the account is open the investor will need to decide how they wish to fund the account, as there are a number of ways in which to do this, although the most popular way is through CDs. Another option that many people choose to fund an IRA is through stocks and bonds, however, it is advisable that a person should be familiar with the workings of the stock market or even consider hiring a broker if they wish to take this route.

It is important to realize that although both traditional and Roth IRA savings accounts have annual contribution limitations, there are also certain annual income limitations for people looking to invest into a Roth IRA. However, anyone, regardless of income is able to contribute to a traditional IRA. It is recommended that individuals consult with a tax professional, as it is always best to prevent any over contributions into an IRA. Unfortunately, if an individual does over contribute to an IRA there are certain tax implications and they may even be charged penalties.

Many people wonder whether it is worthwhile investing into an IRA savings account, although certain factors make it seem like a sensible option. There is great insecurity about the current Social Security system and life expectancy rates always seemed to be lengthening, and therefore most people need more money for their retirement than they ever did before. These simple factors are more than enough reasons to establish an IRA savings account as early as possible, thus allowing individuals to plan for their retirement life without any major concerns. As mentioned, IRA’s can be opened at a bank or brokerage firm, but it is widely accepted that there are many more investment options available by taking the brokerage route.

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