Individual retirement accounts, or IRAs, are essentially tax-advantaged savings accounts. They’re similar to 401(k) accounts in a lot of ways; however, you don’t have to go through your employer to open one or to make regular contributions. If you’re thinking of opening an IRA, here’s what you should know. 

Advantages of IRAs

There are two kinds of IRA savings accounts, and each comes with certain tax advantages. In a traditional IRA, the contributions themselves are typically tax-deductible; however, you’ll have to pay taxes on future withdrawals. In a Roth IRA, on the other hand, the deposits are not deductible, but you can make withdrawals in the future without incurring any additional tax liabilities. 

Regardless of whether you open a traditional or Roth IRA, you can be sure your money is safe if you invest it solely in certificates of deposit (CDs). Although you can invest your IRA in stocks and bonds, as well, sticking with CDs ensures the funds are protected up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). Additionally, you won't have to worry about fluctuating interest rates because CD rates are set when they're opened. This can make it easier to budget for retirement because your return will be predictable. 

Limitations of IRAs

Like other savings accounts designated specifically for retirement, IRAs come with contribution limits. In 2019, for example, you can’t invest more than $6,000 into an IRA if you’re under 50 or more than $7,000 if you’re over 50. And if you have a traditional IRA, you can no longer make contributions upon turning 70½.

Additionally, there are maximum income limits for account holders. If you’re married and filing jointly and your modified adjusted gross income exceeds $203,000, for example, you won't be able to make any contributions at all. As such, IRAs are not a versatile vehicle for saving for retirement because only certain individuals can benefit from opening one.

If you’re unsure whether an IRA should be part of your retirement planning, a financial advisor can evaluate your situation and offer advice tailored to your particular situation. 

For help with retirement planning, turn to Talbot State Bank. Based in Fayetteville, GA, this locally owned bank is proud to provide clients with personalized and attentive service when attending to all their financial needs. Whether you want to open a retirement savings account or finance a home, you can rely on them for fast turnaround time and expert guidance every step of the way. To find the branch nearest you, visit their website, or call (770) 692-0900 to talk to a member of their team about your needs.