Preparing for retirement requires careful planning, thorough research, and long-term investments. While some people have options available through their workplace, others require alternative solutions to ensure sufficient savings. Individual retirement accounts (IRAs) are popular options that provide long-lasting financial stability for young professionals. Review this guide to discover if an IRA is right for you. 

What to Know About IRAs

What is an IRA?

An IRA is an account that’s dedicated to increasing retirement savings. There are two options available: traditional and Roth.

A traditional IRA sets aside a portion of your income before tax, keeping the IRS from assessing any capital gains until withdrawal. A Roth IRA utilizes your income after it’s been taxed, which means that all withdrawals are completely tax-free. 

Which option should I choose?

Calculating your tax rate in retirement will help you choose an account that maximizes your savings. This can be achieved by listing each type of income, such as Social Security, pension, and the amount you expect to withdraw from the IRA. Add your ordinary income and subtract expected deductions for that year to determine the tax bracket you fit into.

If the number is high, you might want to opt for a Roth IRA and pay taxes upfront. Those who fall into a lower bracket should have no difficulty paying the taxes on a traditional IRA when it’s time to withdraw. 

Are there any restrictions?

The IRS does restrict the amount that account holders can contribute to both traditional and Roth IRAs each year, depending on their age. For example, the maximum annual contribution for those under the age of 50 is $6,000. Older individuals can increase their contribution to a total of $7,000.

There are no age limits on who can make regular contributions to an individual retirement account. The only requirement is that you maintain a regular income. Contributions can be made indefinitely and will continue to bolster your retirement savings until it’s time to make a withdrawal.

How can I open an IRA?

Head to your local bank to start the application process. You’ll need a form of identification, a routing number, and a checking or savings account for direct transfers. Be sure to include the name and address of your employer and the information for a beneficiary. 

Figure out how much to contribute by calculating your monthly income and bills. Evaluate the money that’s left and divide it between the IRA and your general savings, keeping it under the $6,000 annual limit.

To open an IRA, reach out to First State Bank. This locally owned bank has served Pope County, AR, for over 80 years, providing a variety of opportunities to increase retirement savings. Their IRAs range from six months to four years and require a minimum opening deposit of $1,000. With mobile banking options and timely customer service, these professionals will help you plan for the future. Call (479) 498-2400 to schedule an appointment, or visit their website for additional information.