Are You the Right Individual for an Individual Retirement Account?

A Deep Dive to Learn About IRAs

September 2012

You've certainly heard about IRAs (individual retirement accounts). But have you had a nagging feeling that you should learn more about them — but that it would be too confusing?

The truth about IRAs is there's no reason to be intimidated and plenty of reasons to get started today. "This is the real beauty of the IRA: Your earnings accumulate tax-free, supercharging the already powerful effect of compound interest," note the editors of Kiplinger's Personal Finance in Kiplinger's Practical Guide to Your Money.

For most people — unless you're self-employed or run a small business — you'll be choosing between a traditional or a Roth IRA. But simplicity aside, there are several differences between these two basic kinds of IRAs, starting with the tax benefits.

Specifically, income to a traditional IRA are tax-deductible when you make them, up to government-set limits. Contributions to a Roth IRA aren't tax-deductible, but withdrawals are tax-free (again, subject to limits). For the specifics, you can find more information on the Internal Revenue Service website.

Who Should Consider Roth IRAs?
Financial planners often favor Roth IRAs for those early in their working careers. "The key question is what your current bracket is and what your tax bracket will be in retirement," Fred Amrein, a certified financial planner at Amrein Financial in Wynnewood, Pennsylvania, told Ally Bank in a recent interview. "We can probably assume that tax brackets will be higher in future years, so a Roth IRA can make the most sense in a lot of ways."

Roth IRAs have more liberal withdrawal rules overall, and they offer additional advantages if you plan to apply for college financial aid. "Using the Roth IRA with CDs is a great starting point for young parents trying to save for retirement and college at the same time," said Amrein.

Who Should Consider Traditional IRAs?
If you're closer to retirement or you expect your retirement income to be significantly less than what you're making now, however, many financial planners say opening a traditional account can make sense. Lowering your tax burden in the short-term might mean you can contribute more to your retirement savings beyond the maximum allowed with IRAs — such as with a 401(k) or other employer-sponsored plan.

Ally Bank is Here to Help.
We offer both Traditional and Roth IRAs at competitive rates that also come with the security of your deposits being insured by the Federal Deposit Insurance Corp. (FDIC) to the maximum amount allowed by law.

Get started or learn more at, or call a live customer care representative anytime, 24/7 at 877-247-ALLY (2559).

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