What Are IRAs?

An Individual Retirement Account (IRA) is, in the simplest terms, a personal savings plan with tax advantages to either the deposits or the withdrawals from accounts under that plan, depending on what type of IRA you open.

IRA accounts have various restrictions on how much money you can deposit into the account every year, known as a contribution limit, at what age you can withdraw from the account without penalties, and what you are expected to withdraw from that account when you retire. One major restriction on withdrawals is that you must be over the age of 59 ½ to not receive an early withdrawal penalty from the IRS. Remember, these restrictions are subject to change on an annual basis, so it is always best to speak to a tax-advisor with any questions.

What types of IRAs are there?

There are two main kinds of IRAs you are likely to encounter at your financial institution: Traditional IRAs and Roth IRAs. There are a few other kinds, but these two are the most common.

• A Traditional IRA is a savings plan where contributions may be tax deductible, depending upon the taxpayer’s income, tax-filing status, and other factors. This account is the most common retirement account, as Traditional IRA, may allow deductions on your contribution right away, with taxes paid on the account when withdrawals are made. Be aware that withdrawals from a Traditional IRA may be required as Required Minimum Distributions (RMD) after a certain age determined by the IRS, currently 72 as of 2023. This has changed from 70 ½ over the past few years and is subject to change again. If you have higher income right now and think that you will be in a lower tax bracket when you are retiring, this option is likely better for you. 
• A Roth IRA is a savings plan where contributions are not deductible but qualified distributions may be tax free. This account is especially popular among younger contributors who are looking to pay taxes now to get them out of the way and be able to make tax-free withdrawals from the account upon retirement, with less restrictions than the Traditional IRA and no Required Minimum Distributions. This is especially useful if your tax bracket at the time of retirement is going to be higher than at the time of contribution. 

How do I open an IRA Account?

These Traditional or Roth IRA savings plans can be opened as a variety of actual account types. If you are nearing retirement and need a safe place to harbor your retirement funds outside of the ups and downs of the stock market, see if your financial institution offers IRA Certificates or IRA Money Market accounts that are a federally insured place to finish your savings journey.

If you are just starting your retirement planning journey, you may want to speak to a Financial Advisor to answer the questions that you might have, as well as taking advantage of the higher yields that come with more risks from investments, which may not be federally insured. Either way, make sure you consult a Certified Public Accountant or another accredited tax advisor before making any decisions related to funding your retirement account.

The good news with Northeast Credit Union is that we offer you both options. You can open our IRA Share Certificate Accounts or IRA Money Market accounts as either a Traditional or Roth IRA by scheduling an appointment with a Member Experience Specialist or by calling 888-436-1847.

For more information on invested IRAs and retirement planning, please contact a Northeast Wealth Advisor at wealthmanagement@necu.org.