A traditional IRA (Individual Retirement Account) is a savings account for retirement that gives you tax advantages. The contributions you make to your traditional IRA might be deductible from your taxes depending on a few circumstances.
The IRS‡ sets the limit on how much you can contribute. This year the maximum amount is $5,500 or $6,500 if you are 50 or older. Even if you contribute less than this amount, your contribution is still eligible for tax deductions.
Generally, if you are contributing to a traditional IRA, you cannot access the money without a tax penalty until you are 65, have participated in the plan for at least 10 years or terminate service with your employer. You can learn more on the IRS website‡.
A Roth IRA is a savings account for retirement where the contributions are not tax-deductible. Roth IRAs are very flexible. You can withdraw your regular contributions without a tax penalty or fee; however, you generally cannot withdraw your earnings on the contributions without penalty until you are 59.5 or have held the account for five years.
In order to be eligible to contribute a Roth IRA, your modified adjusted gross income must be less limits established by the IRS. There are also contribution limits. It may seem like a no-brainer, but you cannot contribute more than you make in a year if your earned income is less than your contribution limit. So if you make $4,000 a year at a part-time job, you wouldn’t be allowed to contribute $5,000 to your Roth IRA using other funds like interest from another savings account.
Another advantage is if you decide to work during retirement, you can continue to contribute to the account. You can also leave money in your Roth IRA for as long as you live. Learn more on the IRS website‡.
While there are many savings options available, always do your research first and talk to a trusted financial advisor to ensure you are using the best account for your unique retirement goals.
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UMB Financial Corporation (Nasdaq: UMBF) is a financial services holding company headquartered in Kansas City, Mo., offering complete banking, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska and Arizona. It also has a loan production office in Texas. Subsidiaries of the holding company include mutual fund and alternative investment services groups, single-purpose companies that deal with brokerage services and insurance, and a registered investment advisor that manages the company's proprietary mutual funds and investment advisory accounts for institutional customers.
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