Even though most people would agree that saving more for retirement is a good idea, figuring out how to do it can be challenging and a bit confusing, especially for beginners.
Many experts say a good place to start is by taking a hard look at Individual Retirement Accounts (or IRAs) and deciding whether you are best suited for either a traditional or a Roth IRA.
In Some Ways, the Two IRA Types Are the Same.
Both are popular retirement planning tools, and both are governed by the same limits: If you're qualified, you can contribute up to $5,000 per year; if you're 50 or older, $6,000 is your limit. Be sure to read the Internal Revenue Service's guidelines for all the details.
Traditional IRAs offer you a tax benefit right now, "because contributions to these accounts typically are deductible, subject to income limits. In such cases, your money grows tax deferred until you begin to take it out, when you are 70½," John Papa, president of Diversified Planning Strategies, in Caldwell, New Jersey, recently told Ally Bank in an interview.
But What is a Roth IRA and How Does it Differ From a Traditional IRA?
Roth IRAs, for one, provide no current tax benefit. But when you begin to withdraw the money - the interest or dividends its earned are tax free.
"The younger you are, the more sense it makes to put money in a Roth IRA, because you probably have more years of allowing your money to grow, tax-free," Papa said.
But in addition to those "what is a Roth IRA" basics, what does it offer that makes it special?
- Estate-Planning Advantages Traditional IRAs require you to begin taking money out once you are over 70½ but Roth IRAs do not. For wealthier individuals, that provides more flexibility in estate planning.
- Early-Withdrawal Flexibility If you need to take the money out before age 59½ for something that doesn't fall into the allowable IRS categories for early withdrawal, you will pay a 10-percent penalty, just as you would with a traditional IRA. But because you didn't get any tax advantage for the contribution in the first place, you won't owe taxes on early withdrawals from your Roth IRA either.
With such IRA options available, it's important to keep your retirement planning flexible. And Ally Bank has IRA products that can help you meet your retirement needs with just the kind of flexibility that smart retirement planning requires.
For example, with the IRA Raise Your Rate CD, our annual percentage yield (APY) is among the most competitive in the country. And if you notice that our current IRA Raise Your Rate 2-Year or 4-Year CD APYs go 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.
Learn more about all the Ally Bank IRA choices, find Roth IRA answers and get started at AllyBank.com or call one of our customer care associates at 877-247-ALLY (2559), where live help is available 24/7.