Trying to decide on the right individual retirement account (IRA) may remind you of looking at the menu at your favorite frozen yogurt shop. You know that some of the choices will be better for you than others, but there just seem to be too many to choose from.
When you compare IRAs, initially, you'll need to decide which kind of tax advantage works best for you.
- Contributions to a traditional IRA are deductible when you make them, up to government-set income limits.
- Contributions to a Roth IRA aren't deductible, but withdrawals are tax-free (also subject to limits). The Internal Revenue Service provides a lot more detail on this, including information about the income limits.
But that's just the first of several choices you'll need to make.
The next big decision is where to open your IRA. IRAs are offered by all kinds of institutions: banks, mutual fund firms, and even insurance companies.
And when you compare IRAs, you'll also need to decide what kind of financial product to put your savings in. You can pick from an exhaustive list that includes everything from stocks and bonds to CDs and savings accounts. Some will work better for you than others.
How can you know what's the right choice when you compare IRAs?
As a very general starting-point guideline, most financial planners agree that the longer-term your goals, the more risk you can afford to take on. But that's not to say you want to gamble on an investment in a company whose potential suggests a potential reversal of several quarters of underperformance. In fact, the experts we've interviewed also say part of your savings should always be in safer choices, such as CDs or a high-yield savings or money-market bank account that provides a solid financial base.
The key, according to the financial planners we've talked to, is to focus on your goals. To do that, you need to answer two questions:
- What are you trying to accomplish with your IRA?
- Where does your IRA fit into your overall financial plan?
So if your 401(k) retirement plan is heavily invested in the stock market, you might want to have an IRA holding more secure financial products. You can have more than one IRA, as long as your overall contributions don't exceed government limits.
And while it's definitely wise to compare IRAs, it's important to not let "analysis paralysis" slow you down. After all, while you're agonizing over the contingency plans for all your plans' contingency plans, your money could be earning interest.
Ally Bank IRA CDs and IRA Online Savings Accounts require no minimum balance to open and offer peace of mind, because your funds in them are insured by the Federal Deposit Insurance Corp. (FDIC) up to the maximum allowed by law.
Find out more at Allybank.com, or call 877-247-ALLY (2559), where live customer care is available 24/7.
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