Retirement will occur in the blink of an eye. Are you prepared? It’s time to start saving for your retirement while saving money today. An IRA has several tax advantages that will allow you to accrue savings for your retirement.

What is an IRA?

older couple dissing

An IRA is an individual retirement account. Workers open these accounts to help them save for their retirement, and an IRA is considered a type of savings account that offers tax benefits to workers.

You’ll be able to save for your future retirement while saving money in the present.

When choosing to open an IRA account, you’ll find that there are two main IRA options available to you:

  1. Standard
  2. Roth IRA

Both have their own advantages, and it’s important to know the differences between the two before making your final choice for your savings account.

Standard IRA Information

A standard, or traditional, IRA is a great option for anyone who wants to enjoy tax deductions now. When you choose to open a traditional IRA, you’ll do so for two main reasons:

  1. Your income exceeds the required income to open a Roth IRA account.
  2. Contributing to a standard IRA will put you into a lower tax bracket.

When you open a standard account, you’ll be able to:

  • File tax deductions on your contributions with certain conditions
  • Defer your investment earnings to speed up your savings growth
  • Contribute to a retirement plan regardless of income
  • Consolidate your before-tax retirement accounts without paying taxes

There are limits to how much you can contribute to your standard IRA every year.

  • Contribution Limits: $5,500 if under 50; $6,500 if 50 or older

As you hit the 50-year-old mark, you can start to contribute $1,000 more a year towards your retirement to accelerate the amount of savings you accrue for your retirement.

There’s also a SIMPLE IRA, which is essentially an IRA made simple with:

  • Employees and employers able to make contributions
  • Employers able to match or make non-elective contributions

If your employer offers contribution matching, it may be worthwhile to choose a SIMPLE IRA account.

Roth IRA Information

A Roth IRA account is a great option for anyone who falls below the Modified Adjusted Gross Income (MAGI) limit. The IRS has set MAGI limits that will impact filers. The limits are rather high, and in 2017, they fall into the following limitations:

  • $118,000 – $133,000 for single filers
  • $186,000 – $196,000 for married couples

If you fall within these limits, you’ll be unable to contribute up to the limit. In the event that your MAGI exceeds the maximum listed, you will not be able to contribute to Roth IRA.

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There are a few reasons to choose a Roth IRA:

  1. You want tax-free withdrawals while retired.
  2. You want to avoid minimum distributions after 70.5 years of age.
  3. You expect to be in a higher tax bracket when you retire.

Roth IRAs allow you to:

  • Defer taxes to allow your savings to grow for retirement
  • Access money with no tax or penalties before retirement
  • Avoid minimum contributions after 70.5 years of age
  • Consolidate your after-tax retirement accounts

The contribution limits in 2017 are:

  • Contribution Limits: $5,500 if under 50; $6,500 if 50 or older

Where to Open an IRA Account

You can ask your employer about the retirement options available to you, or you can choose to open an account on your own. Some of the best places to open an IRA account are:

There are dozens of companies and banks offering IRA accounts, so also check with your local bank to see which retirement vehicles are available to you.

Discuss your retirement options with an accountant or use the benefits of each listed above to make a choice on which IRA option is the best option for you.

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