As you approach retirement age, it’s important to think about how you’ll fund your retirement.
One popular option for retirement savings is an individual retirement account (IRA). In this blog, we’ll explain why you need an IRA for retirement and the benefits of having one.
First, let’s define what an IRA is. An individual retirement account (the IRS refers to them as individual retirement arrangements) is a tax-advantaged investment account designed to help individuals save for retirement.
There are two main types of IRAs: Traditional and Roth. Both types of IRAs offer tax advantages, but they differ in terms of when you pay taxes.
Here are some reasons why you need an IRA for retirement:
Tax benefits
One of the main benefits of having an IRA is the tax advantages it offers.
Contributions to a traditional IRA are tax-deductible, meaning you can reduce your taxable income by the amount you contribute to the account. This reduces your tax liability and can help you save money on taxes each year.
With a Roth IRA, you contribute after-tax dollars, but your earnings grow tax-free and you can withdraw your contributions and earnings tax-free in retirement.
Compound interest
Another benefit of having an IRA is the power of compound interest.
With compound interest, your earnings grow over time, which means the earlier you start contributing to an IRA, the more time your money has to grow. This can lead to significant growth in your retirement savings over the years.
Retirement income
An IRA is designed to help you save for retirement, which means you’ll have a source of income in retirement. With
a traditional IRA, you’ll have to pay taxes on your withdrawals in retirement, but with a Roth IRA, you can withdraw your contributions and earnings tax-free.
Flexibility
An IRA offers flexibility when it comes to investment options. You can choose from a wide range of investment options, including stocks, bonds, mutual funds, and more.
This allows you to tailor your investments to your personal preferences and risk tolerance.
Control
Having an IRA gives you more control over your retirement savings. Unlike an employer-sponsored retirement plan, like a 401(k), you have more control over your investment choices and can contribute as much or as little as you’d like each year.
Diversification
By having an IRA, you can diversify your retirement savings. This means spreading your money across different types of investments, which can help reduce risk and increase potential returns.
