Including an IRA into your retirement planning

Written by V. Raymond Ferrara, CFP®

On January 24, 2021

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If you are one of the many people who want to save up to reach their dream retirement, then you need to consider all your options. If your employer offers a workplace retirement plan, such as a 401(k), then that is a great way to save and grow your wealth. However, whether or not you have a 401(k) through your workplace, you may want to consider contributing to an individual retirement account (IRA) as well.

What is an IRA?

An IRA is a retirement investment account that offers tax advantages to those who contribute through it. Although its annual contribution limit of $6,000 ($7,000 if you are age 50 or older) is lower than the $19,500 ($26,000 if you are age 50 and older) contribution limit for a 401(k), it offers many benefits you may want to take advantage of.

Benefits of factoring an IRA into your retirement include:

  • Save more money — The more you can contribute to your retirement savings, the more wealth you can grow to enjoy in your retirement. Even though its annual contribution limits are small compared to a 401(k), these savings can grow over time and boost your retirement nest egg.
  • Reduce your taxes — Like a 401(k), contributing through an IRA offers tax advantages. However, the tax advantages you receive vary depending on the type of IRA you choose.

    With a traditional IRA, you contribute to your account with pretax dollars. You do not pay taxes on these contributions, thus lowering your tax liability for the year. However, you do have to pay taxes when you make withdrawals at your eligible retirement age. If you make too much money, the amount you can contribute and deduct from your taxes may be limited or even eliminated. 

    With a Roth IRA, you make contributions with post-tax dollars. This means you do not receive an immediate tax benefit for the current year. However, you do not have to pay taxes on Roth IRA funds when making a withdrawal at your eligible retirement age. This option may be more beneficial for those who expect to be in a higher tax bracket at their retirement age because they will not have to pay taxes for their Roth IRA withdrawals. Again, there are income limitations.
  • Gain more options — With a 401(k), your investment options are limited to preselected options chosen by the employer who made the plan. With an IRA, you have more freedom in how you choose to invest your funds, meaning you can be more aggressive or conservative depending on how your funds factor into your overall retirement strategy.

Talk to a ProVise CFP® professional about including an IRA in your retirement plan

Whether it is right to invest in an IRA depends on your individual circumstances and goals. It helps to have someone to guide you through your financial decision making so you can worry less about navigating the complicated financial world and focus more on enjoying your day-to-day life.

At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.

Are you ready to talk to a professional about your retirement strategy? Contact ProVise today to schedule a complimentary consultation.

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