Whether you’re approaching retirement or you still have a few more years, you may be wondering if you have the right financial plans in place. IRAs are great for stowing away money when you’re no longer bringing in a regular salary. Here are a few facts for understanding these plans.

Common Questions About IRAs

What is an IRA?

Individual Retirement Accounts, or IRA plans, differ from savings accounts in that they can be invested for growth over time. There are traditional IRAs and Roth IRAs; both offer tax breaks, but with their own schedules.

What is a traditional IRA?

This type allows the investment to grow as tax-deferred, which means you won’t pay taxes on earnings until you withdraw them, and anyone with an earned income can contribute. You will typically pay an income tax plus 10% federal penalty if you are under 59 1/2 years old when you withdraw. If you don’t withdraw early, you must start by the year you turn 72. Some instances offer a tax-deductible option, and the contribution reduces an income tax bill. An example of this is someone who doesn’t have a qualified employer retirement account. If you are a plan participant, you can deduct contributions only if modified adjusted gross income doesn’t exceed certain limits. 

What is a Roth IRA?

The difference with a Roth IRA is that it is tax-free investing, and you will pay zero taxes on withdrawals made after you turn 59 ½ when your account has gone through a five-year minimum holding period. Contributions are not tax-deductible, but you are not required to make withdrawals at any point. A beneficiary, however, may be required to make withdrawals. There are certain income limits to qualify.

How do contributions & withdrawals work?

Each tax year, there are limits set for IRA contributions. For 2020, the annual limit is $6,000 or $7,000 if you are 50 and older. There may also be limitations based on filing status and income. Typically you can never contribute more than you earned for that particular year, and you can only contribute for a spouse if you file jointly. As for withdrawals, they can be made for retirement or earlier for life events such as purchasing a home, with a limit of up to $10,000.

For IRAs, mortgage loans, and other financial services, trust Armstrong County Building & Loan Association. Located in Ford City, PA, and serving Armstrong County since 1925, the loan provider offers a range of options at competitive rates and is ready to help you find your best financial options. Their location offers deposit accounts and ATMs for your financial needs. Call (724) 763-7137 or visit them online for more on their services.