Q: What is an IRA?
A: An Individual Retirement Account, or IRA, is an account established to save and invest money for retirement (provided you’re eligible), with potential tax benefits. The two basic types are the Traditional IRA and the Roth IRA. Each has slightly different rules and benefits.
Q: What’s the difference between a Traditional IRA and a Roth IRA?
A: In a word: taxes. Basically, the difference lies in whether you pay taxes on money the year you put it into your IRA account, or pay taxes when you take distributions (when you take money out of your account.)
|If you earn $50,000 a year and are eligible to put $2,000 in a Traditional IRA, you could be able to deduct the contribution from your income taxes (meaning you will only have to pay tax on $48,000 in income to the IRS.) At age 59-1/2, you may begin withdrawing funds but will be forced to pay taxes on all amounts withdrawn from the IRA.
|On the other hand, if you put the same $2,000 in a Roth IRA, you would not receive the income tax deduction. If you needed the money in the account, you could withdraw the principal at any time (although you will pay penalties if you withdraw any of the earnings your money has made .) When you reach retirement age, you could then withdraw money 100% tax free.
Deciding whether to open a Roth IRA or Traditional IRA is a major decision with potentially large financial consequences. Both forms of the IRA are great ways to save for retirement, although each offers different advantages.
Q: Where Can I Open an IRA?
A: IRA’s of both types can be opened through Bath State Bank. It requires no more than a few minutes of a visit.
Q: How Much $$$ Do I Need to Open an IRA?
A: For 2023 (for 2024 taxes): You can open an IRA at Bath State Bank for $50. The 2023 IRA contribution limit for someone who qualifies with earned income is $6,500 under age 50. Over age 50 is a limit of $7,500 with earned income.
Q: What if I have questions about IRAs?
A: Simply call us at 765-732-3022 or 800-463-7464.