Getting Your Ducks in a Row for Retirement: Understanding IRAs
March 9, 2020 |
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Time sure does fly. We’re almost three months into the new year. Well, no matter what the calendar states, it’s always a good time to get intentional about retirement planning.
To start, there are two basic approaches to saving for retirement. You can open a traditional IRA through your local bank or you can opt to participate in your employer’s 401(k) plan (if available). Many people elect to do both.
In this feature, we’ll focus on IRAs. When it comes to IRAs, you have two choices: a traditional IRA or a Roth IRA. Both provide the benefit of growing your retirement savings tax-deferred.
What is a traditional IRA?
A traditional IRA is a popular way to grow retirement savings with pre-tax money. You benefit from an immediate tax break1 for making contributions and your savings grow on a tax-deferred basis. In 2020, contribution limits for IRAs are $6,000 if you are under the age of 50 and $7,000 if you are age 50 or older.
What is a Roth IRA?
With a Roth IRA, you can make after-tax contributions into a retirement savings account. The benefit is that Roth IRA withdrawals made during retirement are typically tax free1.
Important Considerations About Traditional and Roth IRAs
Are you a half-full or half-empty glass person? Or, are you a pay-now or pay-later person? Your answer and perspective may determine whether a traditional IRA or Roth IRA is right for your retirement plan.
If you expect you’ll be in a higher tax bracket during retirement than today, then a Roth IRA may the right choice. If you’re looking for an immediate benefit of contributing tax-free, then a Roth IRA may not be right for you.
Not sure which way is best? Don’t worry. You can open both types of IRAs and invest a percentage of your contributions in both Roth and traditional IRAs.
Smart Choices from Dime
Now that you’re more informed about the benefits of traditional and Roth IRAs, let’s get started on helping you make the right choice for your IRA.
Dime Community Bank provides smart choices for your retirement savings. Visit dime.com/IRA to learn more. Or, schedule an appointment with a Dime IRA specialist at any Dime branch location.
1Make sure you speak to a tax advisor and visit IRS.gov for details regarding IRA eligibility, contribution and distribution rules.