There are a few tools you can use while saving for retirement – one of them is an Individual Retirement Account, usually called an IRA.
What is an IRA?
The federal government introduced IRAs in the 1970s to encourage people to save for retirement rather than relying only on their company or union retirement benefits.
An IRA is an account you open with a financial institution where you can save and invest money for retirement. The money is allowed to remain in the account and grow tax-free, or on a tax-deferred basis, as long as you do not withdraw the money before you are 59.5 years old. If you do withdraw the money early, you’ll usually need to pay taxes as well as a 10% penalty.
Your IRA contributions can be investments in various financial products, including stocks, bonds, and mutual funds.
A Traditional IRA with Texas Republic Bank
Before you open an IRA with us, you should have a general idea of what a traditional IRA is.
– Traditional IRAs allow you to save up to $6,000 each year, or $7,000 each year if you are over 50. The money you put into your IRA is tax-deductible, so the more you save each year, the less you will owe in taxes for that year.
– Additionally, a Traditional IRA does not have a minimum investment to open an account.
If you are torn between a few options, you can open more than one IRA as long as the total amount you invest into your IRAs does not exceed the overall yearly limit. Regardless of what type of IRA you choose, your savings can compound more quickly because it is not in a taxable account.
What can you expect once you retire?
If you’ve been keeping your money in an IRA account tax-free, usually that means a traditional IRA, you will pay taxes on that money once you retire. At the age of 72½, you will also have to take a Required Minimum Distribution (RMDs) from your IRA. This RMD will be considered a taxable income unless the tax was paid beforehand, or if your account qualifies as tax-free.
An additional benefit applies if the account holder, unfortunately, passes away before retirement. The IRA assets will go to the spouse or the person named the beneficiary when the IRA was opened.
Overall, saving for your retirement is a crucial step in your financial planning. At Texas Republic Bank we are committed to giving you the best experience in your retirement planning. Please contact us today!