A traditional IRA (individual retirement account) is an account that you can open at a bank or at brokerage firm. When you put funds into this account you earmark them for retirement. There are a series of rules on IRAs. You cannot withdraw the money before you are fifty-nine and a half without receiving a penalty for early withdrawal. Additionally you are currently limited to contributing $5000.00 a year. This limit counts towards both to traditional and Roth IRA contributions together. You will be taxed on your earnings when you withdraw the money from your IRA.
The biggest advantage to a traditional IRA is that your contributions are made tax free. You can lower your taxable income by contributing to your IRA. The IRS allows you to make donations to your IRA until you file your previous years taxes. For example if you contribute money in January you can count it towards last year’s income. However it may be easiest to contribute on a monthly basis to your IRA account, as this will make the process easier for you.
When you choose where to open your IRA account, you need to think about the long term investments versus the risk you are putting your money in. Most banks will offer IRAs that are CDs (Certificates of Deposit). The rates of return on CDs are very low, and you will be able to earn more money by choosing to open your IRA at a company that will allow you to put your money in a variety of mutual funds. You can do this through your financial advisor. If you do not have a financial advisor you need to find one.
