IRA Basics: My IRA Can Do That?

An IRA is One of Your Most Versatile Accounts

September 2012

Ever since they were introduced in the early 1970s, Individual Retirement Accounts or IRAs have been one of the most popular financial products ever.

Just to get a sense of how popular, here are some statistics from the Investment Company Institute:

  • IRAs account for $4.2 trillion in assets.
  • IRAs total about one quarter of all U.S. retirement wealth.

It's a safe bet that IRAs are popular because they're relatively easy to understand and use, once you get two IRA basic concepts:

  • Concept #1: An IRA itself isn't just an investment. Because it's designed to help fund your retirement, it might helpful to think of it more like a bucket that you will eventually fill.
  • Concept #2: There are three types of IRAs: Traditional, Roth and SEP (or Simplified Employee Pensions) IRAs. And, to understand the differences, there's another set of IRA basics:

    • Traditional IRAs are pre-tax buckets: "You may contribute up to $5,000 per year [$6,000 if you are age 50 and above]," Timothy R. Yee, a registered Principal of SII Investments, Inc. and Green Retirement Plans, Inc. in Oakland, Calif., explained to Ally Bank in a recent interview. "And depending on your marital status, income level and whether you have a retirement plan at work, you may deduct that amount when you file your taxes."
      Traditional IRAs are probably the most popular "because it is a way to possibly lower your tax bill, or get a bigger refund," he says. "You are taxed when you withdraw the money, at age 70 and a half."
    • With a Roth IRA, the reverse is true: "You do not take a deduction for your contribution," he says. "In return, any earnings on your contribution are not subject to tax when you withdraw them." Typically, Roth IRAs appeal to younger people, whose concerns about what the tax rate might be 40 years from now outweigh the desire for a bit of a tax break now.
    • SEP IRAs are especially appealing to small businesses and self-employed people, for whom they are designed.

Once you've mastered these IRA basics and decided on which type of IRA you'd like, the next question is what to put in that bucket.

For investors with a long-time horizon or with a high-risk tolerance, the choice is often stocks, bonds and mutual funds. These can generate a higher return over time, but carry more risks.

For those who are closer to retirement age or more risk-averse, it's also possible to fill your IRA with CDs, money market or savings accounts, like those offered by an FDIC-member bank like Ally Bank so that your account balances would be included in your FDIC insurance coverage up to the maximum allowed by law.

For example, with the IRA Raise Your Rate CD, you get an interest rate that is among the most competitive in the country. And, if you notice that the current interest rate on our IRA Raise Your Rate 2-Year or 4-Year CDs goes up, you have the option to request a rate increase — one time with the 2-year IRA Raise Your Rate CD and twice with the 4-year version.

Get the IRA basics and beyond by visiting us at or by calling customer care at 877-247-ALLY (2559), where help is available 24/7.

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