To help you save for the future, Frick Financial Federal Credit Union offers various IRA Accounts, including Traditional and Roth. Our retirement plans offer you a way to set aside a portion of your earnings for the future and to multiply your assets over the years.
An Individual Retirement Arrangement (IRA) is simple way to start investing in your future retirement. The ideal time to open an IRA is as soon as you start working, especially if your employer doesn’t offer a retirement plan. The sooner you start, the greater the effect of earning interest on interest, referred to as compounding. Designed to fit your life as your career evolves, the most common reason people open an IRA is because they’ve changed jobs, needing a place to move their old 401(k). When you already have an IRA account established, you can easily move your old 401(k) into it. In general, IRA accounts have restrictions on taking withdrawals since it’s intended for future use, but your patience is rewarded in valuable tax advantages. Life happens, so in special circumstances you may be able to access funds without an early withdrawal penalty, like purchasing your first home or eligible college expenses.
Both offer flexibility and valuable tax benefits, the eligibility requirements differ
Most notable differences between Traditional and Roth IRAs are tax benefits associated with your contributions and when you can withdraw funds. Notable similarities include the IRS penalty for withdrawing funds before the age 59 ½ . Both require taxable earnings to be able to contribute and both require those contributions not exceed a specified limit determined annually. A very basic example would be if the limit is $7,500 and your Modified Adjusted Gross Income on your taxable wage is $10,000, then first you’re able to contribute to any IRA and secondly, you can contribute up to $7,500 to your IRA accounts in total.
Roth IRAs
In general, you may not deduct your Roth IRA contributions from your income. Since you cannot deduct these contributions, you don’t lower your reported income amount when you file your taxes, effectively paying the tax burden now rather than when you retire (or when you withdraw funds). Because you’ve already paid your tax burden, you don’t have a specific age in which you’re required to withdraw funds. Even better, when you do withdraw Roth funds, they’re typically tax-free!
Traditional IRAs
In general, you may deduct your Traditional IRA contributions from your income, effectively lowering the income threshold used to establish your tax obligation by the IRS. By claiming
your contributions on your taxes, you’ve deferred that tax burden to retirement (or when you withdraw funds). You’re required to begin taking withdrawals from your Traditional IRA at a specific age, generally the year you turn 73. The government wants the taxes you were able to defer all those years, so if you don’t withdraw your Required Minimum Distribution on time, you will be penalized.
