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Retirement savings seems complicated, but it doesn’t have to be. Opening an IRA (Individual Retirement Account) and contributing to it regularly can create a secure retirement scenario for your future. There are two types of IRAs, Traditional and Roth, and with both options money contributed grows on a tax-deferred basis. For 2019, you can make contributions up to the tax filing deadline of April 15, 2020. You can also make 2020 contributions at any time this year. Below is some more basic information prepared for educational purposes only. (Please note, Spencer Savings Bank does not provide tax advice. Be sure to consult with your tax, legal and accounting advisors before engaging in any transactions.)

Traditional and Roth IRA’s
A traditional IRA is funded with pretax dollars, and allows an individual to contribute pre-tax dollars to a retirement account where investments grow tax-deferred until withdrawal during retirement. Contributions may be tax-deductible, depending on some factors. Upon retirement, the individual is taxed at the IRA owner’s current income tax rate. Capital gains or taxes on dividend are not assessed. The contribution limit for 2020 is a maximum of $6,000 if you are under the age of 50 ($7,000 if over 50). Starting after age 72, account holders must take required minimum distributions from their traditional IRAs. Any funds removed before full retirement eligibility incur a 10% penalty.

The SECURE Act, also known as the Setting Every Community Up for Retirement Enhancement Act, passed in December 2019 allows account holders to make contributions indefinitely to a traditional IRA. The bill includes significant provisions aimed at increasing access to tax-advantaged accounts and preventing older American from outliving their assets. It is designed to improve the country’s retirement prospects. Speak to your tax advisor for more information and a list of changes included.

Contributions to a Roth IRA are a little different. They are made with after-tax dollars (meaning you can’t deduct it). Because you paid taxes on your contributions, withdrawals are penalty-and tax-free as long as you’ve held the account at least five years and are 59 ½ or older. Early withdrawals here are also subject to a 10% penalty. Roth IRA contributions for 2019 and 2020 are the same as for traditional IRAs.

Know that not everyone will qualify to contribute to a Roth IRA. High-income earners are limited in their ability to fund Roth accounts. In 2020, the income phase-out range for Roth contributions for a married couple filing jointly is $196,000 to $206,000 (for singles and heads of household it is $124,000 to $139,000). There are no required minimum distributions with Roth plans, and you can continue contributing to a Roth account in your 70s and beyond (providing you have earned income and meet eligibility requirements).

The Power of Compound Interest
Saving early and consistently are the two best ways to benefit from compounding. The earlier you start saving and taking advantage of compounding, the faster you’ll reach your early-retirement goals. At age 30, if you took $50 from your biweekly paycheck and invested it in an account with a 6% annual rate of return, by the time you turned 65 you would have accumulated nearly $150,000. Now, if you decided to wait and start saving at age 45, your savings would be much lower at just under $100,000. Compound Interest puts your money to work for you, and it can help exponentially grow your wealth!

Make Saving Automatic
As humans, we often run on autopilot – without any real conscious involvement. There is no easier way to save than making it automatic. Create an automatic savings plan and use it to easily set some money aside for your retirement goals. If you are already using direct deposit for your paycheck, have your bank transfer the amount each month. You can also have your employer deduct the amount each month and deposit into the account of your choice. Watch your money grow and … don’t even think about it!

Open Your Account Today
At Spencer, we’re committed to your long-term retirement goals. Ask about our limited time 13-Month IRA promotion, offering a highly competitive rate with a Platinum Checking Account. 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 call us at 1-800-363-8115 today!

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