The Ins and Outs of an IRA

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The Ins and Outs of an IRA

What is an IRA?

In Layman’s terms an IRA, or Individual Retirement Account (may also be referred to as Individual Retirement Arrangement), allows the owner to deposit funds pre or post tax into a designated savings account to save for retirement. There are two primary varieties of IRA accounts, a Traditional IRA and a Roth IRA. The main difference between the two is deciding when you want to pay taxes on your interest-earning funds.

Traditional IRAs

With a Traditional IRA your contributions to the fund may be tax deductible and earnings are tax deferred.  However, when you withdraw funds they come with an associated income tax. (Penalties apply if money is withdrawn before age 59 ½.) As your contributions into a Traditional IRA grow, their prospective taxation grows with them, maintaining deferred taxes until an amount is withdrawn.

Roth IRAs

Completely separate, is a Roth IRA, with the greatest difference being the qualification requirements. If your income is above certain limits you may not be able to contribute to a Roth IRA, but instead be restricted to a Traditional IRA. A great prospect about Roth IRAs is that while the contributions are not tax deductible, the earnings are able to grow tax free, with no additional taxes upon withdrawal. 

Each of the various options offer the opportunity to grow your contributions with compounding interest, and a longevity of savings. By starting an IRA today, you can save for the future, and make the most of your taxes!

When do I need to make my contributions?

Depending on your type of IRA, completing your contributions before filing your taxes could be an important advantage. By making your contributions ahead of time you are able to potentially use your contribution amount towards deductions on your tax filings. If you are using the Roth IRA however, you are not able to claim deductions on your IRA contributions.

Where do I get an IRA?

At State Bank we offer a variety of IRA options,  including Traditional and Roth IRAs described in this article. Stop in today or call us at (888) 367-5500 to discover which Individual Retirement Account is the perfect fit for you!

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