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  • If your employer does not offer a 401k for your retirement needs, you might consider opening an individual retirement account (IRA). This type of account is an ideal way to save for retirement and, depending upon the type of IRA you open, you may even reap some tax benefits.

    Significance

    An IRA is a type of account offered by banks, credit unions and brokerage companies used to save for retirement.

    Types

    The most popular types of IRAs are traditional, Roth, simplified employee pension (SEP) and savings incentive match plan for employees (SIMPLE).

    Time Frame

    Typically, IRAs are set up so that funds are not withdrawn until age 59 1/2. Depending upon the type of IRA, withdrawing funds prior to age 591/2 could cause significant tax penalties.

    Benefits

    The main benefit of using an IRA to save for retirement is that your money will grow tax-free. In addition, you will benefit tax-wise; depending on the type of IRA you open, you will either save upfront on taxes or you will save on taxes upon withdrawal of your IRA funds.

    Misconceptions

    Not everyone can contribute to an IRA. According to CNNMoney, IRAs have various employment, eligibility and income restrictions.

    Source:

    CNNMoney: Ultimate Guide to Retirement

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