Retirement seems so far off in the distance for many Americans that a large portion of the population either hasn’t started saving or has put off making significant contributions. However, due to the benefits of compound interest, the earlier money is put away, the better. One effective tool for funding your nest egg is an individual retirement account (IRA). They come with several benefits and are ideal for those who don’t have a 401(k) or another employer-sponsored retirement plan. Here are just a few reasons why it pays to open up this long-term savings account.
What Are the Advantages of Opening an IRA?
1. Boosts Retirement Income
Planning to rely on Social Security to cover your expenses while retired? Know that those monthly payments may not match your financial lifestyle. Opening an IRA and making contributions now can help boost the income you’ll have for your golden years—both for those once-in-a-lifetime trips and for any unexpected expenses.
3. Provides Tax Deductions
Those who contribute to an IRA may be eligible for a tax deduction. The IRS allows contributions up to the maximum yearly $5,500 limit to be deducted from your adjusted gross income. This only applies if your employer does not offer a sponsored retirement plan. There are other tax deduction exceptions based on your tax filing status and income. Be sure to discuss your unique situation and savings goals with a financial advisor.
3. Grows Savings Tax-Deferred
Another tax-related benefit is the ability to grow these IRA savings without paying taxes on it. The exception is if you make withdrawals from the account before the age of 59½, which carries a 10% penalty. Investments in an IRA are also able to mature without a tax assessment. If you receive a dividend or sell an investment at a profit, capital gain taxes won’t need to be paid on these transactions.
4. Offers More Investment Choices
With a typical employer-sponsored 401(k) plan, employees can only choose from pre-selected mutual funds and other investments. An Estacado IRA offers many more options, including IRA Shares and IRA certificates from 6 to 60 months. Members may also add to their existing certificate up to the federal limit each year.
Let Estacado Federal Credit Union in Hobbs, Lovington and Denver City, be your trusted financial partner for traditional and Roth IRAs. If you need guidance with selecting the appropriate one for your retirement needs, a representative will gladly discuss the terms and differences. Stop by today to learn more about growing your savings or call (575) 393-1596 with questions. Visit the website for details on becoming a member of the credit union.