Planning for retirement can feel overwhelming, but starting with a clear understanding of Individual Retirement Accounts, better known as IRAs, can make the process easier and help you build a stable future.
According to the U.S. Department of Labor, starting early and making regular contributions are two of the most effective ways to build a solid retirement fund. With an IRA, you can leverage tax advantages to make your savings grow, even if you’re starting small. By understanding the basics of IRAs and choosing a financial institution that prioritizes your long-term goals, you can set yourself on a path toward financial independence in retirement.
The Basics of Individual Retirement Accounts
An IRA is a personal savings plan designed to help you save for retirement. IRAs provide tax advantages that encourage you to put money aside for the future, helping you grow your nest egg over time. Here are the two most common types of IRAs:
- Traditional IRA: Contributions to a traditional IRA are typically tax-deductible, meaning you won't pay taxes on the money you contribute in the year you make your contribution. However, taxes will be due when you withdraw funds during retirement, allowing your investment to grow tax-deferred.
- Roth IRA: With a Roth IRA, contributions are made with after-tax dollars, so you won’t receive a tax deduction in the year you contribute. However, when you withdraw money in retirement, you won't pay any taxes on the earnings or original contributions, allowing your funds to grow tax-free.
Both types of IRAs offer a maximum annual contribution limit, which can change year-to-year, so it’s essential to stay informed of the current limit to maximize your retirement savings.
How IRAs Work to Build Your Future
IRAs grow your savings through a combination of contributions and investment growth. Each contribution you make can be invested in various assets, such as stocks, bonds, mutual funds, or certificates of deposit, allowing your money to potentially grow over time.
One significant advantage of IRAs is the power of compound interest. This concept allows you to earn interest on both the money you've saved and the interest that has already been added to your balance. Over time, compounding can significantly increase the size of your retirement fund, making it crucial to start as early as possible.
When you reach retirement age, you can begin to make withdrawals from your IRA without incurring an early withdrawal penalty. Traditional IRA holders will pay income taxes on withdrawals, while Roth IRA holders can withdraw their funds tax-free, giving them flexibility in their retirement years.
The Benefits of Opening an IRA with a Community Bank
Most financial institutions offer IRAs, but opening yours with a community bank can be beneficial for several reasons:
- Competitive rates and flexible options: Unlike many larger institutions, community banks like can offer competitive interest rates on IRA certificates of deposit and may have fewer fees associated with account management. That’s because community banks often prioritize accessible, flexible solutions that make saving for retirement easier.
- Secure and convenient access: Managing your retirement fund should be both secure and convenient. Modern digital banking tools available at most community banks make it easy to track your IRA balance and contributions from anywhere, allowing you to manage your savings securely and effectively.
- Community-centered values: Although it’s commonly overlooked, community banks are often more invested in the local community than larger financial institutions. By opening an IRA with a local bank, you’re also supporting local growth. Your deposits and investments contribute to a cycle of community support, as community banks reinvest in local businesses and families.
- Educational support: Community banks remain dedicated to helping customers make informed financial decisions. From workshops to consultations, they often provide resources to keep you educated on your IRA and other retirement planning tools. An IRA expert is usually available to answer questions, explain your options and make your retirement planning journey smoother.
If you’re ready to take charge of your retirement savings, consider opening an IRA with OMB Bank. Our experienced team is here to guide you through the process and help you make the most of your retirement savings.
OMB and its affiliates do not provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decision.
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