An Introduction to Saving for Retirement: Traditional IRA vs Roth IRA

 group of mature friends

Individuals can expect to retire anywhere in their 60s based on their financial stability and overall health.  For many, understanding how to save for retirement can seem overwhelming.  Money Matters believes in equipping you with the knowledge to feel comfortable and ready to save for all stages of life. 

 

An Introduction to Retirement Savings

One of the most commonly referred to retirement saving accounts is the IRA (Individual Retirement Account), which provides tax breaks to benefit working individuals saving for retirement. 

There are several types of IRAs, but the most common are traditional and Roth. 

 

Traditional IRA:  Contributions can be taken as tax deduction in the year they are made (make sure to consult a tax advisor).  This reduces your gross income, which may change your tax income bracket.  A retirement savings account that is only taxed when withdrawals are made from the account.  Deferring these taxes means the IRA can grow faster than a taxable account.

Roth IRA:  Contributions to a Roth IRA are taxed as income in the year they are deposited.  A retirement savings account that is taxed before depositing funds.  Depositing after-taxed dollars means the account grows tax free and will not be taxed on when being withdrawn.

 

Some other benefits of the Roth IRA:

  • They offer flexibility. Roth contributions can be withdrawn penalty-free at any time.
  • Contributions can continue after age 70 for working individuals.
  • Heirs can benefit from a Roth. Beneficiaries can receive tax-free income stretched over their lifetime.

 

Traditional vs. Roth—Which IRA is Best for Me?
Here are considerations to make before choosing a traditional or Roth route.



Tax Benefits.  Traditional will provide a tax break now, while a Roth will reduce taxes in the future.  Consider your current and future tax brackets to decide the best option.

Contribution Amounts.  Research how much you can contribute to a Roth IRA and how much you can deduct from a traditional IRA.  Depending on your financial situation, one account might make more sense than the other.

Early withdrawal fees and/or penalties?  Both accounts have rules for borrowing money or withdrawing early from an account.

What benefits exist after retirement?  Calculate how long your finances need to remain invested to be financially steady at retirement and if you want to leave funds to your heirs.

grandparents with grandkids

IRA Services Made for You
American Eagle Credit Union offers IRA services to assist growing your retirement savings.

 

IRA Accumulation Account:  One of the credit union's most popular IRA services is our IRA Accumulation Account. Ongoing contributions can be made through payroll deduction, by mail or in person. Open an account or manage an existing account today.

IRA Money Market Account:  If you're looking for a flexible investment account with an attractive rate of return for your Traditional or Roth IRA, the IRA Money Market Account is right for you! You’ll earn higher interest rates as your balance grows! Open an account or manage an existing account today.

IRA Certificates:  IRA Certificates of Deposit offer you a variety of terms and rates to meet your needs. Additionally, you can have the interest earned added back to the CD or credited to your IRA Accumulation account.  Open an account or manage an existing account today.

 

Plan your retirement with our financial calculators

Visit our Retirement 101 Center to help set your goals.

For complete details on IRA accounts, eligibility, contributions and withdrawals, click here, visit your local branch or call our Member Contact Center at 877-325-2848.


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