Individual Retirement Accounts or IRAs have been one of the most popular financial products since their introduction in the early 1970s. The Investment Company Institute reports that:
- IRAs account for $4.2 trillion in assets.
- IRAs total about one quarter of all U.S. retirement wealth.
IRAs are popular because they're relatively easy to use, once you understand a couple of IRA basics. There are three types of IRAs: Traditional, Roth and SEP (or Simplified Employee Pensions) IRAs.
- Traditional IRAs allow you to contribute up to a certain amount, pre-tax. You are taxed when you withdraw the money, at age 70 ½.
- Roth IRAs are essentially the reverse. Your contributions are taxed up front, but not when you withdraw the money. 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 designed for those with small businesses and the self-employed.
Once you've decided which type of IRA best fits your situation, you then have to figure out what and how you’ll contribute. Investors with time on their side or a high risk tolerance often choose stocks, bonds and mutual funds. These can generate a higher return over time, but carry more risks.
Investors who are closer to retirement age or more risk-averse often consider CDs, money market accounts, or savings accounts as the means for contributing to their IRAs. These account balances in FDIC-member banks like Ally Bank are insured up to the maximum allowed by law. And Ally Bank offers rates on all our accounts that are consistently among the best in the country.
Learn more at Allybank.com or call live, 24/7 customer care at 877-247-ALLY (2559).
Ally Bank, member FDIC