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 with an individual retirement account, or IRA. There are two common types, a traditional or Roth IRA. Which works best for you depends on your situation.
Both types of IRA accounts are popular retirement planning tools, and both are governed by some of the same limits: if you're qualified, you can contribute up to $5,500 per year; if you're 50 or older, $6,500 is your limit. The key difference between the two types is when you get the tax benefit. 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 at age 70 ½.
How are Roth IRAs different?
Roth IRAs provide no immediate tax benefit. However, your withdrawals at retirement age are tax-free. The younger you are, the more it makes sense to put money in a Roth IRA, because you likely have more years of tax-free growth. There are other advantages to a Roth IRA, including:
- Estate-Planning Advantages. Traditional IRAs require you to begin taking money out at age 70 ½, but Roth IRAs do not.
- Early-Withdrawal Flexibility. If you need to take the money out before retirement age 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. In addition, you can withdraw your original contribution any time without penalty.
Ally Bank Is Here to Help.
Ally Bank has IRA products that can help you meet your goals with just the kind of flexibility that smart retirement planning requires. For example, with the IRA Raise Your Rate CD, you have the option of a one-time rate increase if our 2-Year CD rate goes up; you have the option to increase your rate twice (two times) if our 4-Year CD rate goes up.
Learn more at Allybank.com or call live, 24/7 customer care at 877-247-ALLY (2559).