Saving for Retirement with IRA’s

August 8, 2014

IRAs were created to help ensure that people who earn taxable compensation — especially those not covered by an employer's pension or retirement plan — can retire comfortably. Built-in tax advantages ensure that IRA earnings compound far more rapidly than regular savings accounts.

More than one type of IRA is available. Click on the links below to learn about the:

  • Traditional IRA
  • Roth IRA

The money used to open and make contributions to an IRA must be earned through:

  • wages and salaries
  • commissions
  • self-employment income
  • alimony
  • nontaxable combat pay

Compensation for the purposes of opening and contributing to an IRA does not include:

  • earnings and profits from property
  • interest and dividend income
  • pension or annuity income
  • deferred income
  • income from certain partnerships
  • any amounts you exclude from income.

Please see IRS Publication 590 for more information.

With the traditional deductible IRA, contributions, up to the maximum allowed by law, may be tax deductible until the time of withdrawal. No taxes are paid on earnings until the money is withdrawn, usually at retirement.

With the Roth IRA, contributions are not deducted from taxable income. No tax is paid on qualified withdrawals; earnings included in a qualified withdrawal are tax exempt. Qualified withdrawals from Roth IRAs are allowed provided at least five years have passed since the initial contribution was made and you are at least 59½. Limited exceptions exist.

There is an upper age limit for making traditional IRA contributions. No contributions may be made for the year you reach age 70½ or any year thereafter. With the Roth IRA, there's no age limit on making contributions.