Individual Retirement Arrangements, otherwise known as IRAs, can be used to start a retirement plan without the help of an employer. If your employer doesn’t offer a plan that works for you, or if you don’t have any plan available at all, then a traditional IRA is a great way to ensure that you can get started with retirement planning. Not only are IRAs perfect for starting retirement savings independently, but they can also be used in addition to a company plan like a 401(k).
How Contributions Work
You can start contributing to an IRA whenever you want, but there are some limitations to the contributions that can be made. If you’re under the age of 50 then the contribution limit is $5,500 per year. If you’re between 50 and 70 years old, then you can contribute up to $6,500 per year.
You may be able to make tax-deductible contributions to an IRA, but it does depend on your unique financial situation…
- If you aren’t paying into another retirement plan through an employer, then your contributions to your IRA will be fully tax deductible.
- Even if you do have another retirement plan through your employer, then you may still be able to make some deductions on your contributions if you earn under $73,000 as an individual, or $121,000 combined with your spouse.
Non-deductible contributions will obviously cost you more over the lifetime of your investment in the retirement plan, however, you will still be gaining a benefit from continually increasing your retirement savings.
When you eventually start taking from your IRA fund, you will pay taxes with each withdrawal that is made. Partial withdrawals are mandatory from the time you are 70-½ years of age, even if they are not immediately needed.
If you’re in a situation where you can make tax-deductible contributions, then you will be able to increase your retirement fund with a significant advantage over other investment methods. Interest payments and dividends on your investment can sometimes be completely without tax, which will get you heading towards your retirement goals much quicker than through some other retirement funds.
Retirement Plan, How Can You Start an IRA Account?
Talk to your bank about opening an IRA account. Although not every bank offers this type of investment, you will be able to get information that helps you to get started. You can also look online with specialist consumer investment firms, with Vanguard Group being just one example.
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