IRAs: Financial Tools for Retirement and Tax Advantages

When you see commercials for large national banks or financial companies on television talking about individual retirement accounts, or IRAs, more often than not they show middle aged or older actors portraying people in need of an IRA. However, IRAs can have a huge impact on your financial life no matter what age you are, how many kids you have or the size of your checking account. They are great financial tools not only to help you get started on saving for retirement, but also in providing tax advantages.

There are two main kinds of IRAs: traditional and Roth. There are others, but these two are the most common when it comes to retirement planning. Each kind of IRA has specific tax advantages that meet different financial needs:
Traditional IRA tax advantages- The main tax advantage with this kind of IRA is that your contributions are deducted from your total income for the year. This allows your tax bill to be lower. For example, if you earned $65,000 this past year and contributed $4,000 to your IRA, you would figure your income tax on only $61,000. Also, all growth of your IRA is tax deferred until you begin withdrawals. Once withdrawals begin (most often at age 59 ½) you will pay income tax at your current rate.
Roth IRA tax advantages- Somewhat the opposite of traditional IRAs, contributions to your Roth IRA gives you no tax break when it comes to your total income. Withdrawals from a Roth IRA are tax-free since you’ve already paid the tax. Your earnings also grow tax-free in a Roth IRA. This choice is better if you expect to be in a higher tax bracket after you retire.
While your life may change dramatically from now until you retire (marriage, children, etc.), it is good to get a jump on saving for your retirement. To see how Northeast Security Bank can help you build a solid financial future, contact us or come by one of our branches today!

Tags: individual retirement account, IRA, Roth IRA, traditional IRA