IRA savings accounts for retirement.

INDIVIDUAL RETIREMENT ACCOUNTS FOR SELF-EMPLOYED INDIVIDUALS

You don’t need to be an employee of a large corporation to start saving for retirement. Small business owners and independent contractors can open an IRA account and start building their wealth right now. The best way to ensure that you’ll have sufficient funds to sustain you after retirement is to set up an account and put that money away.

WHAT IS AN IRA?

IRA stands for individual retirement account, and it refers to investments that individuals put away now in order to receive funds after they retire from work. The investments for an IRA may come from various sources, such as stocks, bonds, mutual funds, and ETFs. There are a few different types of IRA options available, but the main two are Traditional IRA accounts and Roth IRA accounts.

HOW IS A TRADITIONAL IRA DIFFERENT FROM A ROTH IRA?

With Traditional IRAs, you may be able to deduct your IRA contributions on your tax return. These earnings grow in a tax-deferred account until you withdraw them. The funds will be taxed according to the tax bracket you are in when you withdraw your retirement money.

If you choose to open a Roth IRA account, you will need to pay taxes on the money you contribute. There are pros and cons to both options, so the best IRA account for you depends on your needs.

ADVANTAGES OF A TRADITIONAL IRA AND ROTH IRA

You want to be able to enjoy retirement, right? If so, you’ll need to secure your finances for the future. Opening an IRA is beneficial because you can add money slowly over the course of your lifetime. Since a Traditional IRA account is tax-deferred, you may be eligible for tax-deductible contributions.

That means that when you withdraw your retirement money, your money will be taxed at your income tax rate at the time of your withdrawal. Depending on your career, you may be at a lower tax rate at the time of retirement than you were at the rate at which you made the contribution.

With a Roth IRA, you’ll have to pay taxes on the contributions right away. This may be frustrating now, but it can pay off in the future. When you start making withdrawals from your IRA account, you don’t have to owe anything. The money is all yours.

Another benefit of a Roth IRA account is that it is easier to withdraw money before you reach retirement age. Normally, account holders will be charged a penalty if they withdraw money early, but with a Roth IRA, you can withdraw your contributions to use as an emergency fund.

WHAT SHOULD I BE CONTRIBUTING?

Every year, there is an annual contribution limit for your IRA account. In 2020 and 2021, the annual maximum is $6,000, or $7,000 if you are 50 years of age or older. Ideally, you would be paying the maximum amount every year.

Unfortunately, not everyone is able to contribute the maximum annual amount. Budget what you can, even if it is a small portion of your income, and make monthly payments in order to slowly build up your wealth.