An IRA is an individual retirement account. It can be opened by any individual who is willing to save for retirement. They do not require an employer. IRAs allow you to make tax-deferred investments to provide financial security when you retire.
Types of IRA
1. Traditional IRA
According to this plan, you make contributions with money you may be able to deduct on your tax return, and any earnings can potentially grow tax-deferred until you withdraw them in retirement. Many retirees find themselves in a lower tax bracket than they were in pre-retirement, so the tax-deferral means the money may be taxed at a lower rate.
2. Roth IRA
It is a plan where you make contribution from your net pay. After the tax has been deducted. Your money may remain tax free even during retirement provided the right conditions are followed.
Others are:
3. Rollover IRA
Both traditional and Roth IRA plan allows your savings to compound faster than in taxable account.
4. Payroll deduction IRA
It is a plan set up by an employer. Employees make contributions by payroll deduction to an IRA (Traditional or a Roth IRA) they establish with a financial institution.
5. Simplified Employee Pension plan (SEP)
The employer contribute money directly to an IRA set up for each employee.
6. SIMPLE IRA plan
It is a Savings Incentive Match Plan for Employees set up by an employer. Under a SIMPLE IRA plan, employees may choose to make salary reduction contributions, and the employer makes matching or nonelective contributions.
7. SARSEP
Salary Reduction Simplified Employee Pension Plan is a type of SEP set up by an employer before 1997 that includes a salary reduction arrangement.
Why you Should Invest in IRA
Many financial experts estimate that you may need up to 85% of your pre-retirement income in retirement. An employer-sponsored savings plan, such as a 401(k), might not be enough to accumulate the savings you need. Fortunately, you can contribute to both a 401(k) and an IRA. A Fidelity IRA can help you:
- Supplement your current savings in your employer-sponsored retirement plan.
- Gain access to a potentially wider range of investment choices than your employer-sponsored plan.
- Take advantage of potential tax-deferred or tax-free growth.
You should try to contribute the maximum amount to your IRA each year to get the most out of these savings. Be sure to monitor your investments and make adjustments as needed, especially as retirement nears and your goals change.
