An IRA, or individual retirement account, is a savings account specifically meant for retirement savings that usually comes with some tax benefits. Retirement can be right around the corner or years down the road.
Before you get started, arm yourself with information. There are two types of IRAs that are available: Traditional IRAs and Roth IRAs. 2023 Contribution limits for both IRAs are $6,500 (IRA owners 50 and younger) and $7,500 (IRA owners over 50).
Traditional IRAs
Anyone can open a Traditional IRA. You have to earn compensation from employment to contribute to a Traditional IRA. One advantage of a Traditional IRA is that contributions may be tax deductible. Another advantage is that earnings are tax deferred. Withdrawals from Traditional IRAs are taxable. If you want to withdraw money before you turn 59½, you will have to pay a 10% early withdrawal penalty.
Roth IRAs
Roth IRAs differ from traditional IRAs in many ways, one of which being that the contributions you make to it are with after-tax income. Contributions can be withdrawn tax-free and penalty-free at any time. Earnings may be withdrawn tax-free and penalty-free if certain stipulations are met. Please check with a competent tax professional to determine your Roth IRA contribution limit as it is determined by income.
Both types generally come with a variety of investment options, so do your research and, if necessary, talk to a competent tax professional about which is best for you.