An individual retirement account (IRA) is a long-term savings plan designed to help you save for retirement and reach your retirement goals. IRA tax benefits are similar to an employer-sponsored retirement plan, such as a 401(k) or 403(b).

If you're self-employed or a freelancer, or your employer doesn't offer a 401(k), the IRA might b෴e your best option for saving toward retirement while reducing ta📖xable income. If you have access to both a 401(k) and an IRA, saving in both types of plans can diversify your investments.

You can choose from various IRAs from almost any bank or brokerage. Unlike in a company-sponsored 401(k), you can invest in almost anything you want. To get you started, let's review four basic facts about IRAs.

1. IRA Limits

For 2024 and 2025, the 澳洲幸运5官方开奖结果体彩网:Internal Revenue Service (IRS) allows you to contribute as much as $7,000 if you're younger than age 50 and $8,000 per year if you're 50 or older.

You must have 澳洲幸运5官方开奖结果体彩网:earned income to contribute to an IRA. That can include a spouse's income if you’re married and file jointly.

2. Types of IRAs

There are two primary different types of IRAs: traditional and Roth. The traditional IRA doesn’t require that you pay taxes on your gains until you start taking withdrawals after turning 59½ or 澳洲幸运5官方开奖结果体彩网:require🐷d minimum distributions ꦬ(RMDs).

As of Jan. 1, 2023, the age at which you must begin taking RMDs was raised to 73 from 72.

Because the money has not been taxed (yet), the traditional IRA keeps more money in your account over time, and that alꦰlows the money to compound at a faster rate.

The Roth IRA requires that you pay taxes now at your current tax rate. This 澳洲幸运5官方开奖结果体彩网:allows your earnings t💛o grow tax-free.💧 If you anticipate being in a higher tax bracket in the future, the Roth is probabl🌺y your best choice.

Aside from those two popular choices, there are many other 🌃types of IRAs, inꦬcluding:

• SEP IRAs, which allow employers (usually small businesses or self-employed individuals) to make retirement contributions.
• SIMPLE IRAs, which are designed to be offered by small businesses.
• Self-directed IRAs, which are very similar to traditional or Roth IRAs except there are limits to the investment options.

3. IRA Eligibility

With the traditional IRA, the tax deductions for your contribution amounts are limited if you're also covered by an employer-sponsored plan.

Full Deduction Allowed

For 2024, individual taxpayers earning $77,000 or less can take a full deduction ($79,000 for 2025). Married couples earning less than $123,000 can make the full deduction ($126,000 for 2025).

Partial Deduction Allowed

For 2024, a partial deduction is available for single filers earning more than $77,000 but less than $87,000. Married couples making between $123,000 and $143,000 can get a partial deduction.

For 2025, a partial deduction is available for single filers earning more than $79,000 but less than $89,000. Married couples making between $126,000 and $146,000 can get a partial deduction.

No Deduction Allowed

There is a cap on the allowable modified adjusted gross income (MAGI) of a taxpayer to take this deduction. If an individual's MAGI exceeds $87,000 in 2024 ($89,000 in 2025), they are not eligible to take the deduction.

The same is true for married filing joint taxpayers if the spouse making the IRA contribution is covered by a workplace retirement plan earning more than $143,000 in 2024 ($146,000 in 2025).

If your traditional IRA isn't tax-deductible, a Roth IRA is the better choice. With the Roth IRA, contributions are made with after-tax dollars, and there are income limits.

4. IRA Costs

To open an IRA, you'll need to visit a bank or an investment broker, in person or online.

Some online brokers offer no-fee IRAs other than the commissions for buying and selling within the account. Other brokers will charge a 💝yearly management fee, even if they aren’t managing the account for you.

Look for a no-fee IRA. A 1% management fee can significantly cut into your balance over 20 years, so it's important to keep fees to a minimum.

The Bottom Line

Whether it’s a Roth or traditional IRA, get started. The money sitting in your savings account, earning little to no interest, could w🀅ork harder for you in an IRA, even with safe investment choices.

Don’t know how to inv🔯est the money? Ask a fee-only advisor for some help. Many are happy to charge you a one-time fee and a fee for an annual consultation.