Understanding Individual Retirement Accounts (IRAs)
Learn about IRAs, their types, contribution limits, tax benefits, withdrawal rules, and considerations for retirement planning. Understand how traditional and Roth IRAs differ and when to consult a financial advisor for guidance.
What Are IRAs?
Individual Retirement Accounts (IRAs) are savings vehicles designed for retirement planning, offering significant tax advantages. There are two primary types based on tax treatment of contributions: Roth IRA and traditional IRA. Contributions to a Roth IRA are made with after-tax dollars, and withdrawals are tax-free. Traditional IRAs allow pre-tax contributions, with taxes due upon withdrawal. Eligibility for certain tax benefits depends on your modified adjusted gross income (MAGI).
For individuals under 50, annual contribution limits are typically $6,000, increasing to $7,000 for those over 50. Contributions can be made to both traditional and Roth IRAs but must stay within these limits combined. IRAs can be funded alongside employer-sponsored plans, although this may influence tax deductions for traditional IRA contributions.
