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By: AgFed Credit Union

Welcome to AgFed Credit Union's MoneyDig blog! 

Get confident about your personal finances with a number of articles, tips, advice and more.


What an IRA actually is and how to get started

 Oct 14, 2021
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For a lot of people, retirement is a distant concern, a far-off problem that includes a lot of questions they might not have answers for. Will retirement even be possible so far in the future? Will collecting Social Security even be an option?

Planning for retirement makes the future feel more real, which can be scary at first. Fortunately, retirement planning is not a new idea and, despite what people may say, it’s not going to stop being an option anytime soon.

The key to being able to retire comfortably is to get things moving with a comprehensive plan. Starting an Individual Retirement Account (IRA) is one of the smartest and most secure ways to make sure you have what you need after your retirement.

So, what is an IRA? It’s a secure investment account with tax advantages that helps you save money for retirement. You can open an IRA at any age and with almost any financial institution.

Waiting to get started just doesn’t help at all

There are a lot of reasons why you might be putting off thinking about retirement. You might feel like you have a lot of time to get started on your retirement account, or too little time for it to matter. You could even be holding out hope that you’ll receive some unforeseen support, like winning the lottery or inheriting a fortune from a distant, eccentric uncle.

Chances are, you’re going to need to take things into your own hands. You don’t have to wait for an epiphany or mid-life crisis to get started, and you certainly shouldn’t gamble with your future financial stability.

The good news is that it’s never too late to get started with an IRA.

Starting an IRA when you’re young

Opening an IRA early in life is indeed the ideal situation. Because you’re starting early, you don’t have to worry about saving big, fast. You can take full advantage of the slower and more reliable forms of retirement savings.

For a lot of young people, a Roth IRA might just be the ideal option. Because you make post-tax contributions, the interest that accumulates in the account is tax-free. You’re essentially giving your older self free money.

This doesn’t mean that other IRAs aren’t a good option for younger people. However, young people who can afford to take advantage of their Roth IRA’s yearly maximums will see a steady, secure growth.

Starting an IRA later in life

If you’re getting started a little later, there’s nothing wrong with that. It’s always a good idea to take your future financial stability seriously. Opening an IRA is a smart investment at any point, and it’s a safe way to get started.

If you’re closer to the end of your career than the beginning, you might be more likely to consider a Traditional IRA, but this doesn’t mean you should ignore Roth IRAs. Either option might be a good choice depending on your financial situation.

Be sure to consider the terms of the IRA itself, and how they apply to you. With a Traditional IRA you might be eligible for tax breaks, and there’s no income limit. On the other hand, a Roth IRA has the benefit of having no age limit on contributions and doesn’t have mandatory withdrawals. You can, and should, compare the pros and cons of each.

Types of IRAs and how they work

Different types of IRAs work differently. At AgFed, we offer two of the most popular types of IRAs: Traditional and Roth. These are both good options for saving for retirement, but one of them might be better for you, depending on certain factors.

A Traditional IRA lets you make pre-tax contributions to the account, and you can start making withdrawals when you turn 70 and a half. You will have to pay taxes on these contributions and the interest they’ve earned when you make withdrawals.

With a Roth IRA, your contributions are not tax-deductible, but the interest that builds in your account is tax-free. You can start making tax-free withdrawals at age 59 and a half, if it has been five years since you opened your account. You’re not required to make withdrawals at any age, however. A Roth IRA is the best choice if you are not eligible to claim your contributions as a deduction when you file taxes.

An IRA helps you set course for the future you want

Opening an IRA is one of the best ways to start to approach your retirement. Please feel free to contact us about opening a Traditional or Roth IRA.

Don’t forget to visit AgFed’s online IRA Retirement Center, where you can find helpful tools and calculators, read articles about IRA products and news, and open and manage your IRA account online!


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