Saving for Retirement: Understanding IRA Options to Help You Succeed!
For many of us, the concept of planning for retirement seems daunting, confusing – and maybe better put off until tomorrow. But you don’t have to be scared of retirement planning, and the more you put it off, the less prepared you’ll be. Experts at Fidelity Investments estimate that you may need up to 85% of your pre-retirement income in retirement, and to build up that kind of savings you’ll need to strategize appropriately.
The most common way to save for retirement is through an IRA, or Individual Retirement Account, of which there are three kinds: Roth, Traditional & Rollover. What these mean:
Roth IRA: One of the major benefits of a Roth IRA is that you can contribute at any age. Contributions are always withdrawn tax free, and earnings are federally tax-free after the five-year aging requirement has been satisfied and certain conditions are met. Roth IRAs are also not subject to minimum required distributions, which traditional IRAs are. (RothIRA.com has more specific descriptions of MRDs and income requirements related to Roth IRAs)
Traditional IRA: In contrast to a Roth, a Traditional IRA has tax-deferred growth, different from a Roth’s tax-free growth, and one must be under 70 ½ years old with employment compensation to contribute. There are no income limits on a traditional IRA, and withdrawals of pre-tax contributions and any earnings are taxable when distributed. Minimum required distributions are required starting at 70 ½.
Rollover IRA: A Rollover IRA is a traditional IRA made available for funds rolled over from an employer-provided plan.
There are many reasons why a traditional or Roth IRA might be a better option for you and your family. Even with all the information in front of you, it may feel difficult to make a decision. Thankfully, Fidelity has created a Roth vs. Traditional IRA Calculator which can interpret your demographic and income information to help you choose. Also, WomenCertified reviews the quality of financial advisors based on 17 criteria – you can find our recommendations here: Women’s Choice Award Financial Advisors & Firms. A quality financial advisor will have no trouble determining what kind of IRA will be right for you!
Author: Emily Smalter Emily is currently enrolled in a Master's of Social Work program at Kansas University. Outside of her schoolwork, Emily advocates for women to have a stronger voice in both the public and private realm, and spends her spare hours writing on how to make the seemingly smaller tasks in our lives more manageable.