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IRAs 101

Available through CUSO Financial Services, L.P.

 

Saving for retirement is like a marathon. When you first enter the workforce, the finish line—retirement—is beyond your line of sight, but you know it’s there. In the beginning, it’s hard to anticipate what life will look like in 30 or 40 years, but you can start on the right foot by saving early—because time is money.

As you pass different mile markers in life, like changing jobs or being promoted, you’ll want to take advantage of retirement accounts that will help you achieve your retirement goals. Employer-sponsored 401(k) plans are a great place to start, but what else is available? This blog focuses on two types of Individual Retirement Accounts (IRAs)—Roth and Traditional. IRAs offer more investment flexibility than 401(k)s and have tax advantages that could be beneficial.

What’s an IRA?

IRAs are retirement accounts—either tax-deferred or tax-free—that can be used as a primary or additional retirement option. The government created IRAs to encourage saving for retirement, so they have significant tax benefits*. For example, a Roth IRA is best described as a “pay now, save later” account since contributions are taxed before added to the account. Roth IRA investments grow tax-free, as long as they’re in the IRA, and will be tax-free upon withdrawal in retirement, too.

Similar to a Roth, Traditional IRAs grow tax-free, but that’s where the similarities end. Assuming you don’t have access to a 401(k) at work, Traditional IRAs allow contributions to be deducted from the same year’s taxes. This lowers taxable income now, but you’ll be responsible for paying taxes for withdrawals made in retirement. If you anticipate being in a lower tax bracket in retirement, a Traditional IRA could be a good choice.

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How IRAs Work

There are three main characteristics of an IRA that are important to know:

Investments: Your IRA contributions can be invested in stocks, bonds, and other assets. How much and how fast your account grows depends on the assets’ gains and losses. Compared to employer-sponsored plans, you’ll often have more control over where and with whom your money is invested. This means you could reach your goal faster.

Contribution limits: The IRS defines contribution limits for retirement accounts, and how much could vary from year to year. If you have an IRA, your annual retirement contributions can be above and beyond your payroll deduction for a workplace retirement plan. This means that you can save more towards retirement each year.

Withdrawal rules: Funds withdrawn before age 59½ may face a 10% penalty and a tax bill unless the withdrawal purpose qualifies for an exemption. Before making an early withdrawal, consult with a Financial Advisor to understand how your retirement plan could be affected. (NOTE: Retirement distribution changes due to COVID-19.)

Making the Call

Investing in retirement is essential to maintaining a level of comfort throughout your life. Starting early, leveraging IRA benefits, and working with Monaye Nelson-Morgan, CFS** Financial Advisor, can help you cross the finish line.

With her experience, she’ll help guide you through your options and make recommendations that best fit your needs. Plus, she is available to review your accounts and recommend adjustments to keep you on the right track toward your retirement goals. Contact Monaye today for a complimentary appointment or learn more about retirement accounts with Achieve.

 

*For details about taxes and tax deductions, consult your tax accountant.

**Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.

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