As long as you’re earning money, you can open up an individual retirement account (IRA). An IRA is a retirement savings plan that you can open as soon as you’re earning taxable income. Examples of taxable earning are salaries, wages, separate maintenance payments, and bonuses. Aside from the criterion, you should also be below 70 years old to start an account.

Roth Vs Traditional IRAs

Roth IRA is a good choice if you’ll have high income in the future when you need to withdraw the funds. The contributions of Roth IRA are not tax deductible. However, when you withdraw them, they are tax-free.

On the other hand, traditional IRA is best for those who need to have their contributions that they make now deducted. They do not need to worry about paying their taxes in the future because their income will be lesser.

For a year, the contribution limit for both Roth and traditional IRAs is $5,000 per year. However, if you’re 50 years old up, you can contribute as much as $6,000 every year.

You have three choices when you want to open an IR: a bank, a brokerage firm, or a mutual fund company. You certainly don’t need a huge amount of money to open an IRA. Some start off with $25 to $100. There are banks that allow you to invest in stocks. Mutual funds, however, commonly require a $1,000 investment or more. The brokerage firm is for investors who have experience who wish to invest in bonds, stocks, or mutual funds.

Withdrawal rules for Traditional IRA

There is the 59 ½ rule. This rule states that you must wait until you turn 59 ½ years old for you to withdraw. If you don’t, you’ll face a 10 % tax penalty addition.

The other rule is called MDR rules (Minimum Distribution) that start when you turn 70 ½ years old. You should be able to calculate the amount of money to withdraw each year using an expectancy table, making sure that the remaining balance is zero in your IRA account when you finally reach the expectancy age.

Withdrawal Rules For Roth IRA

To make a qualified distribution, you need to be 59 ½. If you become disabled, you are qualified to make a withdrawal. You can also plan to utilize the money as a home buyer.

A traditional IRA is best for those who work in a company that does not offer retirement plans. A lot of people have lower tax brackets when they reach retirement compared to the time when they were still employed. It is very important to have different sources of retirement savings because it is difficult to foretell tax rate changes in the future.

An IRA makes you prepared for the future. You need to save your money while you are still capable to earn. It is one aspect of financial planning that you need to have, and it is best if you have a good financial advisor to help you with it.

Check out Deborah Koval. She’s an expert on this subject.

Leave a Reply.