This plan is like a 401(k) in that your dollars are invested pre-tax, meaning your earnings are not taxed until they are withdrawn. Anyone under the age of 70½ who earns an eligible income can contribute to a Traditional IRA. If you qualify, you can get tax deductions and credits when you put money into your IRA. Remember that the money in your IRA is separately insured from your savings account up to $250,000.
You're in control of your money and you can decide where you want to invest. You might decide to be more conservative, or you can choose to invest your money more aggressively in stocks, bonds, mutual funds, and annuities. This plan might work in your favor because your contributions can reduce the amount of your taxable income.
If you withdraw any funds from a Traditional IRA before age 59½, you’ll be subject to a 10% excise tax in addition to regular income taxes. Exceptions to some tax penalties include:
Keep in mind that you can make withdrawals from a Traditional IRA at any time once you reach age 59½. But by age 70½, withdrawals from a Traditional IRA are required. You'll pay taxes when you do a withdrawal during retirement. Don't worry too much, your tax rate may be lower when you retire due to the possibility of being in a different tax bracket.
Planning for your financial future doesn’t have to be a huge headache. The first step to achieving financial peace is being proactive about saving and investing. With an IRA, you can set up payroll deductions to fund your account and you'll save up a ton of money before you even realize it.
If you'd like more information or are ready to get started, reach out to the Lake Trust Financial Life Planning team. They're ready to help you take the next step toward your financial future.