Retirement Savings

You might hear a lot about saving for retirement. How much should you save? When can you retire? Will you ever retire?

When you consider your alternatives for retirement savings, you should familiarize yourself with Individual Retirement Accounts (IRA). There are two types of IRA: the traditional IRA and the Roth IRA. There are advantages in both varieties, so consider these features to decide the right account type for you.

Tax now or later?

Reap your tax benefits now with a traditional IRA. Many taxpayers can deduct the amount contributed to their traditional IRA for the year, when they file their tax return the following spring. This deduction reduces the amount of taxable income on the return. Fast forward a few years, or a few decades as the case may be, to retirement, and pay the taxes on the money when it is withdrawn from the account.

The benefits of the Roth IRA come as delayed gratification. A contribution to a Roth IRA cannot be deducted now, but future withdrawals won’t be subject to tax. Under certain guidelines, you may withdraw some of your contributions without getting hit by penalties and interest even if you haven’t reached the minimum age for withdrawals of 59 ½.

Check your eligibility.

Most taxpayers are eligible to contribute to either a Roth IRA or a traditional IRA, although eligibility for both account types phases out at higher income levels. Contributions in 2014 are limited to $5500 for those below the age of 50.  Contributors over 50 can squirrel away an extra $1,000 in catch up funds for a total of $6500. If you didn’t get around to contributing last year, you get a second chance. Contributions for 2013 can be made up until April 15, 2014. 

It can be easy to get bogged down by the details of retirement options, but starting an IRA is a great strategy. When your money is invested longer, you could gain more by the time you reach retirement. So don’t wait; get the ball rolling on an IRA today!