IRA Basics


As the final day to file your taxes quickly approaches, many of us are looking for ways to increase tax deductions. An individual retirement account (IRA) is often an underutilized way to reduce your taxes while also saving for retirement. But is it right for you? Below are some of the top questions people ask about IRAs.

An individual retirement account (IRA) is often an underutilized way to reduce your taxes while also saving for retirement. But is it right for you?What is an IRA?

To put it simply, an IRA is a type of savings account that is specifically designed to help people save for retirement, while also offering tax advantages.

Who is eligible for an IRA?

Almost anyone is eligible to contribute to an IRA. A person who has taxable income (and their non-working spouse if filing a joint tax return) and is under 70.5 years of age by the end of the year is eligible for an IRA.

How much can I contribute to an IRA?

When contributing to an IRA, there are some limits based on age and income. Currently, you can contribute up to $5,500 if you are younger than 50, and an additional $1,000 if you are over the age of 50. However, you should consult your tax advisor to find out what is best for your current financial situation.

Are there different types of IRAs?

The two most common types of IRAs are Tradition and Roth.

A Traditional IRA is a retirement account similar to a 401k in that the individual is taxed when you withdraw the money for retirement. Traditional IRAs are tax deductible, although there are some limits. You’ll want to discuss the finer details with your tax advisor.

A Roth IRA is a retirement account that works almost in the opposite way a Traditional IRA does. The individual is taxed on the money you contribute to the account and is not taxed when you withdraw your funds in the future. Again, consult a tax advisor for the specifics on Roth IRAs.

How can Colonial help?

At Colonial, we never stop looking for new ways to better your banking experience. Our dedicated banking professionals are ready to put their years of experience to work to help you achieve your financial goals. For more information on opening an IRA, call or visit a Banking Center near you. We can’t wait to get started!

 

Related Article: Now that you know the basics, learn how to Fund Your IRA With an Automatic Savings Plan.

 

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