By Lorenzo Billie 
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When looking to save for retirement, an IRA may be the best way to go. An Individual Retirement Account (IRA) offers significant tax savings over other methods, so an account holder can keep more of their money for their retirement.
What is an IRA?
It is important to ask, how does an ira work? An IRA is a retirement savings account that is not taxed like typical capital gains. An IRA itself is not an investment account, but rather, it holds all of the investments that one makes for their retirement. The gains one makes on investments held in that account are not taxed as capital gains as long as they do not withdraw any money before retirement.
Why is an IRA a Good Deal?
An IRA is the best deal simply because of the tax savings. If one has a 401(k) through their employer, they do not get the kind of tax savings that you do with an IRA. An IRA allows one to directly save and invest for retirement without moving any money out. However, depending on age, there is a limit on how much one can contribute to their IRA every year.
Who Can Put Money into an IRA?
Just about anyone under the age of 70 ½ and who makes taxable income is able to put money into a traditional tax-deductible IRA. There are some additional qualifications based on income and work provisions of retirement accounts, but those only affect a minority of earners. Roth IRAs never have tax-deductible contributions, but the gains are not taxed as usual. Those have stricter income requirements, but again, they only apply to a minority of earners.
How Much Should I Put into an IRA?
When putting money into an IRA, one should only give a portion of their income that they are comfortable setting aside. If one has enough income to set aside, the maximum amount for earners under age 50 to save is around $5,500 per year, but the limit increases for people between ages 50 and 70. If one could contribute that amount, it is best to set aside the maximum limit every year.
When Can I Access Money from my IRA?
With a traditional IRA, if one withdraws money before age 59 ½, they need to pay a 10% penalty plus income tax. After that age, one can withdraw money with no penalty. With a Roth IRA, withdrawal after age 59 ½ is tax-free.
Fundamental Steps to Start an IRA
According to the experts at SoFi, the first thing one should determine before opening an IRA is if they want to invest hands-on or hands-off. Secondly, one should find an institution through which to open their IRA. Thirdly, you should procedurally open the account. Finally, they should put money into the account and make investments.
How do my IRA Withdrawals Get Taxed in Retirement
When one has a traditional IRA, money one withdraws after turning 59 ½ is taxed on a regular income basis. However, with a Roth IRA, that money is tax-free.
An IRA is the best way to keep the most money for retirement.
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