Retirement planning can feel like one of those financial topics you are somehow supposed to already understand. With different types of accounts, tax considerations, contribution rules, and plenty of unfamiliar terminology, it is easy to put off learning about it for another day.
The good news is that Individual Retirement Accounts (IRAs) are much simpler once you understand the basics. An IRA is an account designed to help you set aside money for retirement while taking advantage of certain tax benefits along the way, and retirement does not have to be right around the corner to start thinking about one. In fact, starting earlier gives your money more time to benefit from compounding—when the money you earn can generate earnings of its own over time. Even if you are not ready to contribute a large amount, understanding your options and getting started when you can may help you build more for the future.
An IRA is a retirement account you establish yourself rather than one provided by your employer. You contribute money to the account, where it can be saved or invested, depending on the type of IRA and the options you choose.
One of the biggest benefits is its tax-advantaged status. Depending on the type of IRA, you may receive a tax benefit when you contribute or when you withdraw money in retirement. We will break down that important difference next.
An IRA does not necessarily have to replace a retirement plan you have through work. Depending on your situation, you may be able to contribute to an IRA while also participating in an employer-sponsored plan, such as a 401(k), giving you another way to build toward your long-term retirement goals.
Two of the most common options are Traditional and Roth IRAs. Both are designed for retirement, but their tax treatment differs.
With a Traditional IRA, eligible contributions may be tax-deductible, depending on factors such as your income and whether you or your spouse participates in a retirement plan at work. Your money generally grows tax-deferred, meaning you typically pay taxes when you withdraw it in retirement.
A Roth IRA takes a different approach. Contributions are made with money that has already been taxed, so there is no upfront tax deduction. However, qualified withdrawals in retirement are generally tax-free.
An easy way to remember the basic distinction? Traditional IRAs may offer a tax benefit now, while Roth IRAs may provide a tax benefit later. That does not mean one is automatically better. Income limits, eligibility requirements, your current tax situation, and your expectations for retirement can all affect which option makes sense for you.
Opening an IRA is only the first step. Depending on the type of account you choose, the money inside it may be held in savings products or invested in options with different levels of potential return and risk. How you choose to put those funds to work can play an important role in how your retirement savings grow over time.
If you prefer a more predictable approach to retirement savings, an IRA Certificate may be worth exploring.
An IRA Certificate combines the tax advantage of an IRA with a certificate that earns a stated dividend rate for a specific term. Because the funds are generally intended to remain in the certificate until maturity, this option may appeal to savers who want predictable growth and do not need immediate access to the money.
American Heritage Credit Union offers IRA Certificate options with different terms, allowing members to choose one that aligns with their retirement timeline and savings goals. Early withdrawals may be subject to penalties, so it is important to understand the terms before opening one.
Here is where retirement planning can become intimidating. You see a big future goal and assume you need a big contribution to make progress—but you don't.
Starting with an amount that comfortably fits your budget can be more valuable than waiting for the perfect time to save more. You might begin with a manageable contribution and increase it as your income or budget changes.
Annual IRA contribution limits and eligibility rules are set by the IRS and can change over time, so check the current requirements before contributing. What matters most is developing the habit of consistently making your future a part of today's financial plan.
There is no universal answer, and that is OK. Start by asking a few questions:
1Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. American Heritage Credit Union and The American Heritage Investment & Retirement Center are not registered as a broker-dealer or investment advisor. Registered representative of LPL offer products and services using American Heritage Investment & Retirement Center, and may also be employees of American Heritage Credit Union. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, American Heritage Credit Union or American Heritage Investment & Retirement Center. Securities and insurance offered through LPL or its affiliates are:
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