Retirement Planning

IRA Basics

People are living longer so having an IRA is a great way to save for retirement. See how they work and compare a Roth vs. a Traditional IRA to find out which may be better for you.

Understanding IRAs

IRAs and You. A Simple Guide to Getting Started.

These days, people are living longer than ever, which means retirements are lasting longer than ever. To make sure you have enough money, it's important to start saving as soon as possible. And one way to do that is with an Individual Retirement Account, or IRA.

Setting Up an IRA

IRAs are not work retirement plans. You can open these accounts through an advisor and don't need to go through your employer. It's typically easy to set up your account- and you can allow your broker to have as much - or as little - control over your investments as you choose.

Contributions

The IRS limits how much you can invest in an IRA each year. If you're younger than 50, you can invest up to $5,500 into an IRA . If you're50 or older, you can invest up to $6,500 a year.

Even better? When you add money to a Traditional IRA, you'll get a tax deduction for your contribution. Now you're saving money for the future while also bringing down this year's tax bill. The Roth IRA doesn't offer a tax deduction for your contributions.

Taxes on Withdrawals

You can start making withdrawals without penalty from your IRA as soon as you turn 59 ½, even if you're not working. When you take a withdrawal from a Traditional IRA, you'll owe income tax on the withdrawal. But with a Roth IRA, you already paid income tax on this money up front, so the withdrawal is tax-free. This means you'll never have to pay income tax on your investment earnings if you are 59½ or older.

Early Withdrawals

IRAs are retirement plans and that's what the IRS wants you to use them for - at least until you turn 59½ . If you want to take money out before then, it counts as an early withdrawal. The IRS charges an extra 10 percent penalty on early withdrawals which can destroy your investment return. While there are a few special situations when you can avoid the penalty, like paying for excess medical bills and college expenses, generally once you put money in an IRA, you should try to keep it there until retirement.

 

 

Which is better for you?
Compare the features of a Traditional and a Roth IRA.

  • Traditional IRAIncome limits only for individuals with retirement plans at work. Otherwise, there are no income limits

    Roth IRAIndividuals with certain incomes are not eligible for Roth IRAs

  • Traditional IRAIn most cases, contributions are tax deferred.Earnings are tax-deferred

    Roth IRAContributions are made with post-tax dollars

  • Traditional IRAWithdrawals and earnings are taxable

    Roth IRAWithdrawals and earnings are generally tax-free

  • Traditional IRATypically eligible at 59½

    Roth IRATypically eligible at 59½ as long as contributions have been held for 5 years (from January 1 of the year of first contribution)

  • Traditional IRAWithdrawals and earnings are taxable

    Roth IRAWithdrawals and earnings are generally tax-free

  • Traditional IRACan withdraw up to $10,000 for the down payment on the purchase of your first home with certain restrictions

    Roth IRACan withdraw up to $10,000 for the down payment on the purchase of your primary home provided you have not owned a home in the previous 24 months and you have held the IRA for a minimum of 5 years. Certain other restrictions apply.

  • Traditional and Roth IRACan withdraw for qualified higher education expenses of owner, children and grandchildren

  • Traditional and Roth IRACan withdraw for qualified, unreimbursed medical expenses provided they exceed a certain percentage of your adjusted gross income. You can also withdraw for medical insurance if you are unemployed or disabled.

  • Traditional IRAWithdrawals before 59½, if not because of an allowable exception, may be subject to 10% early withdrawal penalty.

    Roth IRAWithdrawal of earnings before 59 ½, if not because of an allowable exception, may be subject to 10% early withdrawal penalty. Contributions can be taken out early without taxes or penalties.

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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

Neither Protective Life nor its representatives offer legal or tax advice. We encourage you to consult with your financial adviser and legal or tax adviser regarding your individual situations before making investment, social security, retirement planning, and tax‐related decisions. For information about Protective Life and its products and services, visit www.protective.com.

Understanding Your IRA options.

At Protective, we believe that the more you understand about retirement options, the better you can plan and achieve your retirement goals. That's why we provide information on IRA plans, including Roth and Traditional IRAs. You'll also find other information on this website and in our social channels to help you educate yourself about retirement options.For more information, visit our learning center.

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