Individual Retirement Accounts (IRAs)
Consider These Tax-Advantaged Investments
Thinking About Retirement
An individual retirement account, or IRA, provides tax advantages for retirement savings. There are different IRA solutions available. At First Source, your IRA earns dividends and it is federally insured by NCUA, though there is an early withdrawal penalty.
We offer Traditional IRAs and Roth IRAs, along with a Money Market IRA and IRA Term Share Certificate. We also offer a New York State 529 College Savings Plan and a Coverdell Education Savings Account (ESA).
ESA vs. 529: Learn More
What is an IRA?
An IRA is simply a place to set money aside for your retirement. The difference between Traditional and Roth IRA options is essentially how you are taxed.
A Traditional IRA allows contributions to be tax deferred up front. Any account growth, which includes account interest earned or reinvested, is tax deferred. When you take out money (a distribution), it is taxed as ordinary income. You can take distributions without penalty after you’re 59½, or the IRS will force distributions once you reach 72 (70½ if you reached that before January 1, 2020). Check contribution and income limits for each year you plan to contribute, as they are subject to change.
Where a Traditional IRA gives you a tax deduction on your contributions, a Roth IRA lets you save when you take your money out. Any interest growth, as well as your distributions during retirement, are federal tax-free. A Roth IRA also allows you to make withdrawals of your contributions at any time, for any reason, without penalties or taxes. The growth, or interest, is the only part for which you’ll have to wait until you’re at least 59½ to withdraw without penalties or taxes. There are some restrictions depending on your age and income. Check contribution and income limits for each year you plan to contribute, as they are subject to change.
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Which is Best for You?
Generally, if you expect to be in a higher tax bracket in the future, the Roth IRA is a better choice. If you believe you are at or near your highest tax bracket now and will be in a lower bracket when you retire, a Traditional IRA could be a better choice. You’ll also want to consider what you expect your future income tax to be. Depending on your retirement income level, much of your retirement income could be taxable.
If you have any questions, we are here to help. Call 315-735-8571 to discuss your personal financial situation and plans for the future, as well as the variables of each type of IRA, and how they could fit into your overall retirement strategy.