An IRA or Individual Retirement Account is an account that provides tax advantages for retirement savings. There are a few types of IRAs that True Sky Credit Union offers. First is a Traditional IRA. The Traditional IRA is a personal savings plan that accounts for earnings to be tax-deferred until distributed. The second is a Roth IRA. A Roth IRA is nondeductible, but interest earned is tax-free if distributed for a qualifying reason. And lastly, here at True Sky, we offer an IRA Shared Savings Account. With the shared account you can add contributions as often as you like, or with payroll deductions. But what is the importance of investing in IRAs? Keep reading to find out.
IRA vs 401(k)
Many are aware of a 401(k), you might already be making contributions to yours, but an IRA offers a different way of investing toward your retirement. An IRA allows you to invest in stocks, bonds, mutual funds, or ETFs. IRAs also allow you to make early withdrawals with good reason such as to pay for college or towards a first-time home purchase. A 401(k) has early withdrawal penalties that limit your access to your retirement money. A 401(k) is also usually through your employer where if you change jobs, you risk losing your retirement money, where an IRA is separate from your employer, and able to move with you to new adventures.
IRAs have a big tax advantage when it comes to long-term compounding. While you can put investments such as stocks, mutual funds, and ETFs in an IRA, they are exempt from taxation allowing your retirement money to grow faster until you’re required to start taking distributions.
Talking more about Roth IRAs, if you think you’ll be in a higher tax bracket by the time you retire than you are today, then you should choose a Roth IRA over a Traditional IRA. Roth IRA allows you to pay taxes on your contributions now while the Traditional lets you pay taxes later. When you decide to withdraw from your Roth IRA, the withdrawals are tax free. These tax-free withdrawals can help you put off the need to take cash out of other accounts that could increase your AGI, income taxes or other costs.
Here is a simplified example of the Tax advantages that the Motley Fool set up to help understand. “You deposit $1,000 into a traditional account and invest in a stock you like. In five years, the stock is worth $3,000 so you sell. If you’re in the 15% capital gains tax bracket, you’d owe $300 in federal income tax on the profit, leaving you $2,700 to reinvest. Now, let’s say that investment triples in another five years, giving you an account value of $8,100. You’d owe another $810 in capital gains tax on this sale, giving you an ending value of $7,290.”
“Meanwhile, the same investments in an IRA would be worth more at the end. You would have been able to reinvest the full $3,000 in proceeds from the first, and the second would have grown to $9,000. And no capital gains tax would be due if you left the money in the account.”
IRAs are Accessible and Easy to Set Up
Almost anyone can open up an IRA, there are no age restrictions for opening or contributing to a Roth IRA, but contributions may be reduced based on your tax filing status and the amount of your modified adjusted gross income. You can easily open an IRA with many banks, or with True Sky Credit Union in a matter of minutes. And lastly you can manage your investments on your own, or get financial professionals to help guide you through the process, or you can use payroll deductions.
A differing choice between Roth IRAs and Traditional IRAs is the fact that with a Roth IRA you can still access the money in the account, penalty-free withdrawals of contributions at any time, usually within reason, especially if you already paid taxes on those contributions. IRAs are perfect for building up an emergency fund and retirement savings in one account.
Invest in an IRA with True Sky Credit Union
True Sky Credit Union has a few IRAs you can choose from. Whether you think a traditional IRA is what you’re personally looking for or a Roth IRA is right for you. They also have a Coverdell Education Savings Account (ESA) used to help grow a child’s education expenses such as tuition, room and board, etc. Anyone can contribute to the child’s ESA. We also offer checking and savings accounts, auto, home, and personal loans, financial help resources, and more. If you’re interested in becoming a member or just want to learn more about us, feel free to explore our website, give us a call, or stop by one of our many locations throughout the Oklahoma area. We look forward to assisting you to the best of our abilities.
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