IRAs: 5 Tips for Ideal Retirement Living
Perhaps your youngest child recently moved out of the house, or maybe you have just welcomed a new child to your family. No matter the reason you have retirement planning on your mind, you will want to set the foundation for financially stable, happy retirement living – so you can enjoy your grandkids, your empty nest, or travel to your heart's content.
Americans are not saving enough for retirement. As few as 1 in 4 Americans have no retirement savings – and those who do are not coming close to saving enough for what is to come, according to Stephanie Asymkos, yahoo!money reporter.
Take control of your future and consider these IRA tips to help you reach your ideal retirement lifestyle.
1. Choose the Right IRA: Roth vs. Traditional
An IRA, also known as an Individual Retirement Account, is one of the most common retirement saving accounts. There are two main types of IRAs, a Roth IRA and a traditional IRA. They differ mainly in how and when your money is taxed. When you contribute to a traditional IRA, your contributions are tax-deductible, but your withdrawals in retirement will be taxed. Contributions to Roth IRAs on the other hand are not tax-deductible, but when you reach retirement, your withdrawals will be tax-free.
There are many other intricate details that differentiate a Roth from a traditional IRA. Determining which IRA is right for you depends on many unique factors including your personalized investment goals and objectives, your timeline for meeting those goals, your cash flow needs and your financial resources. If you are considering utilizing an IRA as part of your retirement strategy, Peach State recommends consulting with a Financial Services Representative to find the best solution for your needs.1
2. Save Enough
Picking a target number for how much you should save for retirement depends on many factors: your average cost of living, the age at which you plan to retire, extra expenses you might have in retirement (travel, a vacation home, or medical expenses), and how much you can expect to receive in social security. A good rule of thumb is to assume you should save 10% to 15% of your pre-tax income each year, although depending on your age and when you started saving, this number could vary.
3. Know Your IRA Limits
The IRS limits the amount which individuals are allowed to contribute annually to their Roth and traditional IRAs. Speak with Peach State’s Financial Services Representative to get the most recent numbers on your maximum contributions which may vary depending on your age, tax filing status, income and if you are covered by an employer-sponsored plan at work such as 401(k) or 403(b).2
4. Fix Excess IRA Contributions
If you accidentally contribute more than the allowable annual contribution to your Roth or traditional IRA, you will have what is called an excess contribution, subject to a 6% tax penalty. You can undo an excess contribution by withdrawing the excess funds prior to filing your tax return.
5. Understand What You Can Deduct
Roth IRA contributions are not deductible. Traditional IRA deductions might be limited if you (or your spouse, if you are married) have a retirement plan at work and your income exceeds specific levels. Traditional IRA deductions are allowed in full if you (and your spouse, if you are married) aren’t covered by a retirement plan at work.
Review the IRS chart showing the income range in which your deduction may be disallowed if you or your spouse is active in a work retirement plan.
Bonus Tip! Make Smart Choices About IRA Distributions
Before age 59 1/2, distributions are considered early withdrawals, and different rules regarding IRS taxes and penalties apply to these distributions. These penalties vary based on the reason for the early withdrawal such as medical expenses, down payments on a mortgage, higher education expenses, and others.
If you are considering an early withdrawal, speak with Peach State’s Financial Services Representative regarding the taxes and penalties you will owe. After age 59 1/2, distributions will only be subject to tax, depending on which IRA you have chosen, but not penalties. By age 72, IRA holders are required to take a required minimum annual distribution (RMDs), the amount of which is determined by the IRS.
Consult A Financial Advisor About Your Retirement Goals
Don’t compromise your ideal retirement living due to poor planning—take charge of your retirement today! Peach State Investment Services offers retirement, insurance and investment programs designed to help you and your family through a lifetime of financial planning needs.
Contact Peach State to learn more about strategies for securing the lifestyle you want by funding your retirement today.
1 Peach State Investment Services advisors are registered representatives of CUNA Brokerage Services, Inc. Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC , a registered broker/dealer and investment advisor which is not an affiliate of the credit union. CBSI is under contract with the financial institution to make securities available to members.
Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution.
CUNA Brokerage Services, Inc., is a registered broker/dealer in all fifty states of the United States of America.
2 The content provided is for general education purposes only and should not be construed as legal or tax advice. Prior to requesting a rollover from your employer sponsored retirement account to an Individual Retirement Account (IRA), you should consider whether the rollover is suitable for you. There may be important differences in features, costs, services, withdrawal options and other important aspects between your employer sponsored retirement account and an IRA. Representative is not a tax advisor or attorney. For questions concerning your specific tax situation, please consult a tax advisor. For legal questions, please consult your attorney.