Questions Answered: IRA's

Questions Answered: IRA's

IRA's, or Individual Retirement Accounts, are personal savings plans that provide income tax advantages for people saving money for retirement.

A Traditional IRA is a type of retirement plan that offers tax-deferred earnings and the possibility for tax-deductible contributions. These tax advantages make the traditional IRA a powerful tool in creating a balanced, long-term savings plan.

A Roth IRA is an individual retirement account that offers fewer withdrawal restrictions and requirements.

Who's an IRA for? Anyone under the age of 70 that is earning income.

So, that covers the basics - now let's get to the real question. Why do we need to think about retirement beginning at such an early age? It all comes down to a beautiful little thing called compounding interest.

Let's say you open an IRA at age 26 with $1,000 and it earns .5% interest. The interest compounds every year. By the time you're 70, you would have $1,245.40. Not too shabby for just throwing $1,000 into an IRA and forgetting about it.

But now, let's say you decide to contribute $1,000 not just once, but every year. At age 70 you would end up with $49,324.18. That's over $5,000 earned! The more you save, the more you earn!

Whatever you decide to do to save for retirement - start now! And after seeing what you could earn if you contribute every year, I'm thinkin' it's pretty smart to contribute often.

Not intended as official tax or legal advice. You should always consult with a tax advisor before contributing to any retirement program, and to determine which IRA may be right for you.