As you consider your age, you can estimate how many years you have until retirement. When doing this, do you think you will have enough money saved by the time you stop working? If not, you might need to start saving more money each year. One tool you can use for this purpose is an IRA, and many people use these to save for their retirements. Here are some of the reasons people like IRAs.
IRAs Let You Save Money Pre-Tax
The first thing to know is that an IRA is a retirement fund. When you place money in an IRA, you cannot touch it until you retire unless you are willing to pay penalty fees for withdrawing from it. Each year, you can place up to $6,000 in your fund, and you can contribute more than this if you are over 50. The primary benefit is that you can place this money in the fund before taxes. You do not pay taxes on the money you contribute.
Some People Do Not Have a 401k
People often use IRAs when they do not have access to a 401k at work. If your employer does not offer a retirement fund, you can turn to an IRA because anyone can open one. If you are self-employed, you can use an IRA as a retirement tool instead of pursuing other options.
Some People Max Out Their 401k
Some people use IRAs even when they have 401ks. A 401k has maximum contribution limits, just like an IRA. If you max out your 401k but want to save more money for retirement, an IRA works well.
Your Contributions Reduce Your Tax Liability
One of the benefits of an IRA is that every contribution reduces your tax liability. When you file your taxes, you can include your contribution amount for the year. When doing this, it reduces your taxable income leaving you with lower taxes.
You Can Choose from Two Options
The last thing to know is that you can choose from two types of IRAs. A traditional IRA allows you to save money before taxes. The other type is a Roth IRA. If you choose a Roth, it lets you save money, but you will pay taxes on the money now. You will not pay taxes when you withdraw money after retirement. If you have questions about IRAs, contact a retirement planning service for more information.
