Does the thought of investing your money make your brain hurt?  Do you feel as if you can barely afford to live now and therefore are shunning all thoughts of preparing for retirement?  Believe me, I get it.  For years my father harassed me about beginning to save for retirement.  I finally started saving in the year that I turned 30.  Of course, as is often the case, I regret not having listened to my father and not having started earlier.  Oh well, it is what it is.  The fact is that it is never too late and anything that you save today is better than having nothing tomorrow.  With that said, if you are lucky enough to have a job which offers any type of retirement program, by all means you should take advantage of it as soon as possible!  As a business owner myself, I cannot begin to explain to those employed by others just how much your benefits are really worth…use them!

So let’s begin simply…today we are going to discuss IRA’s.  What is an IRA?  IRA stands for Individual Retirement Account.  There are two common forms of IRA’s which we are going to do an overview of today…Roth IRA’s vs. Traditional IRA’s.

ROTH IRA:

-Contributions are made from post-tax dollars (this means that you make contributions from your take-home pay…AFTER taxes)

Advantages: You do NOT need to pay taxes when you withdraw your money.

Disadvantages: Your contributions are NOT tax-deductible.

-You can open your Roth IRA at any age (18+)

-As a SINGLE person in 2014, you must earn no more than $112,000 in order to be able to contribute to your Roth IRA.  (See your financial institution for information regarding additional limitations).

-You can contribute up to $5,500 annually ($6,500 if you are aged 50+).

-Original owner of policy does not need to take Minimum Required Distributions (MRD’s) at a certain age.  This means that you are not required to begin taking money out of your ROTH IRA when you reach a certain age.

-Minimum age for withdrawing funds is 59 ½.  EARLY WITHDRAWAL IS SUBJECT TO PENALTY.*

*Some exceptions (including, but not limited to): First-time home purchase, certain higher education costs, certain medical expenses…ask your financial institution for further details.

TRADITIONAL IRA:

-Contributions are made from pre-tax dollars (this means that you make contributions from your gross income…BEFORE taxes).

Advantages: Your contributions may be tax deductible.

Disadvantages: You will pay taxes when you withdraw your money.

-You can open your Traditional IRA between ages 18 – 70 ½.

-There is no earning limit for your ability to contribute to your Traditional IRA.

-You can contribute up to $5,500 annually ($6,500 is you are aged 50+).

-You are required to take Minimum Required Distributions (MRD’s) at age 70 ½.

-Minimum age for withdrawing funds is 59 ½.  EARLY WITHDRAWAL IS SUBJECT TO PENALTY.*

*Some exceptions (including, but not limited to): First-time home purchase, certain higher education costs, certain medical expenses…ask your financial institution for further details. 

***Please keep in mind that I am not a financial professional.  This article is simply intended to familiarize you with the basics of Roth IRA’s vs. Traditional IRA’s.  You should absolutely consult your financial institution prior to making any decisions regarding the investment of your money.  Remember, even if you only invest a small amount today…you will be glad for it tomorrow!