Personal Banking

IRA Retirement

In the three decades since it was introduced, the IRA (individual retirement account) has become a popular tool in that effort and with a host of options, and it can make a significant difference in the quality of your senior years.

There are two types of IRAs. The main difference between IRA types becomes apparent when owners or beneficiaries begin withdrawing the funds.

Traditional IRAs

Traditional IRAs are divided into tax-deductible and nondeductible types. The advantage of a traditional IRA is that it may provide a tax deduction for the current year. If you are in the 25% tax bracket and contribute $4,000 to a traditional IRA, you reap an immediate $1,000 in tax savings. But the IRS considers the entire $4,000 plus all earnings taxable when you withdraw the money. The tax deduction of a member who participates in a retirement plan or whose spouse participates in a retirement plan is phased out based on the members taxable income. If you need the tax advantage immediately, a traditional IRA might be best.

Roth IRAs

Roth IRAs are not tax-deductible, but their earnings can be distributed tax-free if certain conditions are met. A Roth IRA offers no immediate tax advantage on contributions, but all earnings can be tax-free at withdrawal. In other words, if the requirements for tax-free distribution are met, all proceeds come to you with no tax liability. Therefore, if you expect to reap substantial earnings on your IRA investment over time, the Roth option might be preferable.

If your spouse does not have a paying job, you can make a contribution in his or her name each year.

The rules regarding IRAs can be tricky, so its a good idea to check with a financial pro at Jax Metro CU as you develop your plan.

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