An Individual Retirement Account (IRA) is a type of savings product designed to supplement a secure retirement while lessening tax burdens. IRA contributions can be made at most financial institutions such as a bank. Annual contribution limits are designated by the Internal Revenue Service each year.
What are the differences between Traditional and ROTH IRAs?
The way money that you contribute to an IRA is taxed is the main difference between the two types of IRAs. Traditional IRAs are taxed at the time of distribution. Funds in a traditional IRA including earnings and gains are not taxed until you make a withdrawal. The rate depends on the tax bracket you are in when you make the withdrawal. ROTH IRA contributions are made up of pre-taxed money. A Roth IRA may be a tax-free retirement savings account provided it meets eligibility requirements.
Will my contribution be tax deductible?
IRA owners under age 50 have a contribution limit of $7,000 for tax years 2024 & 2025. IRA owners 50 and older have a contribution limit of $8,000 which includes a catch-up contribution of $1,000. A catch-up contribution allows people age 50 or older to make additional contributions to an IRA. Deductibility of your Traditional IRA contribution will be determined by income limits set by the Internal Revenue Service. ROTH IRA contributions are not tax deductible.
Are there limitations on withdrawals?
Starting at age 59 ½, you can take penalty-free withdrawals from your Traditional IRA. Mandatory withdrawals start at age 73. Keep in mind these distributions are a taxable event. Distributions from a ROTH IRA are subject to a five-year holding period in addition to age limitations.
Are there asset contribution restrictions in an IRA?
Restrictions on purchases include artwork, stamps, rugs, cars, alcohol, and certain metals. Prohibited transactions of any type will be reported to the IRS and may result in a penalty.
When can I contribute to an IRA?
The annual contribution deadline for an IRA is the same as the tax filing date, typically April 15. Contributions can be made throughout the calendar year to maximize interest earned. An IRA can be opened by any individual with earned income. Financial institutions are not obligated to open IRAs for minors, since they are entering into a contractual agreement.
Is it safe to contribute to an IRA?
There is always a chance of loss with market fluctuation with any investments. The long-term nature of retirement investments can help ease the risk. FDIC-insured institutions like First Keystone Community Bank will carry FDIC insurance for deposit-opened IRAs. In addition, diversifying your IRA investments will also help alleviate any potential risk.
Is it better to have money in a savings account or IRA?
IRAs and savings products speak to two different goals. A savings account can be better for saving cash that you may need soon. An IRA is better for long-term goals like retirement since it has greater growth potential while also providing tax benefits.
To learn more about IRAs, please contact our First Keystone Community Bank professionals at 570-752-3671.
