Why You Should Have an IRA

A Powerful Retirement Tool for Everyone

Individual Retirement Accounts (IRAs) are a popular way to save for retirement – and with good reason. They offer tax advantages, flexibility, and ease of use, making IRAs an attractive option for people of all ages and income levels. Here’s what you need to know about why everyone should have an IRA and how to save for your future.

There are many types of IRAs available to investors, but the traditional IRA and Roth IRA are most common – you can read more about the many kinds of IRAs here. A traditional IRA allows you to make pre-tax contributions, which means you don’t pay taxes on the money you put into the account until you withdraw it in retirement. This can offer immediate tax advantages as it reduces taxable income in the current year.

Roth IRAs allow you to make after-tax contributions, so you pay taxes on the money upfront – but you won’t have to pay taxes on withdrawals in retirement. This strategy means that all investment earning over the years are also tax free in the future. Whether a traditional IRA or Roth IRA is best for you depends on many factors, including whether the tax break will benefit you more now or in retirement.

To start saving with an IRA, you’ll need to open an IRA account with a bank or financial institution. You can invest your IRA in a variety of assets – including stocks, bonds, mutual funds, and more. Many investment houses and banks offer guidance on how to invest your IRA, or you can work with a personal financial advisor.

When it comes to how much you should save in your IRA, the answer varies based on your financial situation and retirement goals. A good rule of thumb is to save at least 10% to 15% of your income for retirement, but some financial experts recommend saving even more. One thing’s for certain – the earlier you start saving, the more time your money has to grow, so it’s never too early (or too late) to start contributing to an IRA.

Another factor to consider is your annual contribution limit. For example, the 2023 contribution limit for both traditional and Roth IRAs is $6,000 for those under age 50, and $7,000 for those age 50 and over. This sum applies to individually to spouses, so a 40-year-old married couple could save a combined total of $12,000 annually in separate accounts. If you can afford to max out your IRA contributions each year, you’ll be well on your way to a secure retirement. Whatever IRA you choose, make sure to contribute regularly. Setting up an automatic electronic transfer from your checking account to your IRA account each month is a sure way to make this happen. By saving consistently, you can build a solid retirement nest egg and enjoy your golden years with financial security.

Speak to your tax professional about how an IRA can benefit you.