Tax season commenced on February 12th, and the IRS has begun accepting and processing 2020 tax year returns. There are ways to help you save on your taxes and funding an IRA (Individual Retirement Account) is one of them. An IRA is a personal account, meaning that you do not need an employer to open one, unlike a 401K. It provides tax savings, either now or in the future, giving you the advantage of tax-deferred or tax-free growth while you save and plan for your retirement. There are a number of different IRA accounts available and choosing the right one can maximize your profits while minimizing your tax bill.
A traditional IRA gives you a tax break for the year you made your contribution. When you file your taxes, you can take a tax deduction for that contribution. That can make the money you invest even more valuable, since it lowers your taxable income and gives you more money to invest with. You do pay taxes on the money accumulated in your traditional IRA once you start drawing it out in retirement. Taxes on those funds are paid at your regular income tax rate.
A Roth IRA works exactly opposite of a traditional one. With a Roth IRA, you do not get a tax deduction when you make the contribution, meaning that you make your contribution with after-tax dollars. But when you retire, you can withdraw that money tax-free, making the Roth IRA potentially even more valuable. Roth IRA accounts can be particularly good choices for younger workers, who have decades during which those funds grow and compound tax-free. Roth IRA accounts may not be as suitable for older workers nearing retirement, since the money will have less time to grow, which can reduce the value of those tax-free withdrawals.
An IRA is the chief retirement tool for people who are self-employed. (Workers with traditional jobs can also use it to supplement any benefits they may receive through their employer.) If you have income from self-employment, you can put some of that income aside in a Simplified Employee Pension (SEP-IRA). Opening a SEP-IRA lowers your taxable income and therefore your taxes as well, while allowing you to save and invest for the future. If you have both wage income and income from self-employment, you can invest in a SEP-IRA and still fully fund either a traditional or Roth IRA, provided you meet the income criteria established by the IRS. For the self-employed and small business owners, the amount that can be saved in a SEP IRA is $58,000 in 2021. That’s up from the maximum in 2020. (Please note, Spencer Savings Bank does not offer this type of IRA.)
The contribution limit sets how much you can contribute to a qualifying IRA plan every year. The contribution limits for all IRA accounts are subject to change, so it is important to check the IRS website before making your annual deposit. For 2021, the following IRA contribution limits apply: Standard Contribution Limit is $6,000 per taxpayer
and Catch-Up Contribution Limit (50 And Over) is $7,000 per taxpayer. (Remember that 2021 IRA contributions can be made from January 1, 2021 to April 15, 2022.)
Open Your IRA Account Today
At Spencer, we’re committed to your long-term retirement goals. Ask about our limited time 8-Month IRA promotion options, offering a highly competitive rate with 1.) Platinum Checking Account and Direct Deposit or 2.) Platinum Checking Account Only. Also, if you have IRAs at multiple banks and are not getting a great rate, speak to one of our IRA specialists. We can manage all of your IRAs and RMDs easier by consolidating them for you into one great rate. We will handle the paperwork and entire process for your convenience. For more information on this current promotion or other IRA account options, please visit our website, stop by your local financial center or contact our Customer Service Center today!