Almost anyone with earned income can open an IRA. The hard part is deciding whether a Traditional IRA or a Roth IRA is the better choice for you.
Traditional IRA = Tax-Deferred Contributions and Earnings
Your contribution to a Traditional IRA may be tax deductible. Earnings on those contributions are tax deferred until you withdraw the money. That means both contributions and earnings can grow tax deferred until you retire. When you do begin making withdrawals (required at age 70 ½, although you can begin as early as age 59 ½), the money will be taxed at your ordinary income-tax rate.
Roth IRA = Tax-Free Earnings
Your contribution to a Roth IRA is not tax deductible, but all earnings are tax free. You can withdraw contributions without penalty at any time. Earnings can be withdrawn without penalty after five tax years following the first Roth contribution as long as you have reached age 59 ½. (other exceptions may apply)
An added perk for the Roth IRA is that you can continue to make contributions even after you reach age 70 ½ if you still have earned income. And, there are no required withdrawals at any age, so a Roth IRA can be a tax-advantaged way to pass assets on to your heirs.
Determining which IRA is right for you depends on your individual situation. Let me answer your questions and help you decide if an IRA can help you reach your retirement goals. Give me a call to learn more.
