The Savings Option That Could Make Your Retirement

Planning for retirement can feel like navigating a maze, especially when you’re trying to make sense of all the different accounts and rules. One option you should know about is an individual retirement account (IRA).

IRAs are one of best ways to save for retirement because of their tax advantages. If used strategically, an IRA can be exactly what you need to make your retirement dreams come true. There’s many different types of IRAs, so you’ll likely find one that’s just right for you. Here’s what you need to know.

What Exactly is an IRA?

IRA stands for Individual Retirement Account. It’s a special type of account designed to help you save for retirement while offering tax advantages. The good news is there are several types of IRAs, each offering unique benefits to suit different financial situations. The more you understand your options the better equipped you’ll be to make a choice that aligns with your retirement goals.

Before diving into the different types of IRAs, it’s important to know that how much you can contribute — and whether those contributions are tax-deductible — depends on things like your income, your access to an employer-sponsored retirement plan and the specific type of IRA you choose. There are also annual contribution limits that vary by account type. It’s important to explore your options with a financial advisor before deciding on the best fit for your future.

Traditional IRAs

A Traditional IRA is one of the most popular options and for good reason. If you’re employed full time or self-employed and under the age of 70.5, you can contribute to a Traditional IRA. The advantage of this account is that it can help you grow your retirement savings with tax-deferred earnings — meaning you won’t pay taxes on the money you invest until you start withdrawing it.

While you may still be able to contribute to a Traditional IRA if you have an employer-sponsored retirement plan, the tax-deductibility of your contributions might be reduced or eliminated. That said, the contributions grow without being taxed, which can add up over time.

Here’s the scoop on distributions:

You can start taking money out of your Traditional IRA at age 59.5, as long as you’ve had the account open for at least five years.
Mandatory withdrawals must begin by April 1st of the year after you turn 70.5.
If you withdraw funds before age 59.5 you’ll face both income tax and a 10% penalty — so it’s best to leave that money for retirement.

Roth IRAs

A Roth IRA offers a unique advantage: tax-free growth on your investments. While you won’t get an immediate tax deduction when you contribute (like with a Traditional IRA), your earnings will grow without being taxed. And when you retire, you can withdraw money without paying a dime in taxes. That’s a big win for many people.

One of the standout benefits of a Roth IRA is the flexibility it offers in retirement. Not only can you access your contributions (but not the earnings) at any time without penalty, you can also keep contributing to your Roth IRA even after you turn 70.5—something you can’t do with a Traditional IRA.

Roth IRAs are especially beneficial if you think your tax bracket in retirement will be higher than it is now. For high earners, there’s even a strategy known as the the “Roth backdoor” where you contribute to a Traditional IRA and then convert it to a Roth IRA. Just be aware that taxes may apply to any gains during the conversion process. Once again, it’s best to consult with a financial advisor before taking this route.

Self-Directed IRAs

Self-Directed IRAs are a great option if you want more control over your investments. When you get an IRA through an investment broker such as Fidelity, Charles Schwab or Vanguard, your money is usually invested in stocks, bonds and / or mutual funds. An IRA from a bank or credit union works more like a high-yield savings account.

With a Self-Directed IRA, you get the the freedom to invest in a wider variety of assets that you couldn’t invest in otherwise. These include but are not limited to:

Gold and silver
Real estate
Privately held companies
Cryptocurrency

With greater flexibility comes more responsibility, so it’s important to be mindful of the rules and regulations that come with this type of IRA. But for those who want to diversify their portfolios beyond traditional investments, a Self-Directed IRA can be a powerful tool.

SEP IRAs

If you’re a small business owner or self-employed, a SEP IRA (Simplified Employee Pension IRA) could be the perfect solution. Unlike other IRAs, the employer makes contributions to this account (not the employee). This makes it a cost-effective way for business owners to offer retirement savings benefits to employees, with the added perk that contributions are tax-deductible.

SEP IRAs are also easy to set up and have higher contribution limits than Traditional or Roth IRAs, making them ideal for businesses that may not be able to make contributions every year.

SIMPLE IRAs

For small businesses with fewer than 100 employees, a SIMPLE IRA (Savings Incentive Match Plan for Employees) might be a good fit. This plan allows employers to make matching or non-elective contributions to employee accounts, making it a flexible, low-cost option. Employees can also make their own contributions, giving them control over their retirement savings.

Find an IRA That’s Right for You!

While the world of IRAs may seem complicated at first. But once you get familiar with your options, it becomes easier to choose the best one for your retirement goals. Whether you’re looking for tax-free growth (Roth IRA), more investment control (Self-Directed IRA) or a way to help your employees save (SEP or SIMPLE IRA) there’s an IRA type that’s just right for you.

To ensure you’re making the most of your retirement savings, make sure to consult a financial advisor and tax professional. They can help you navigate the rules, maximize your benefits and get one step closer to achieving your retirement dreams.

If you’re looking for an IRA, you’re in the right place! Click here to explore Horizon’s IRA share and certificate options. Plus, unlike many other IRAs Horizon Credit Union IRAs are federally insured up to $250,000 so your money will grow safe and secure until you choose to retire.