Which IRA is Right for Your Retirement? 3 IRA Options for You

Planning for retirement is one of the most important financial decisions you can make, and choosing the right Individual Retirement Account (IRA) is a critical part of that plan. With several options available at Porter Bank, it’s essential to understand the differences between IRAs to ensure you’re making the best choice for your financial future. Let’s break down the three main types of IRAs, Traditional IRA, Roth IRA, and SEP IRA to help you decide which one is best for you.

3 Different Types of IRAS

Traditional IRA

A traditional IRA is one of the most common retirement accounts available, offering significant tax advantages. With a traditional IRA, your contributions may be tax-deductible depending on your income and whether you’re covered by a retirement plan at work. The money in your IRA grows tax-deferred, meaning you won’t pay taxes on your gains until you start making withdrawals in retirement. This can help your savings grow more quickly. 

  • Who is it for?: The traditional IRA is ideal for individuals who expect to be in a lower tax bracket during retirement than they are currently. If you’re looking for an immediate tax break and want to defer taxes on your earnings until retirement, the IRA is a great option. 
  • Contribution Limit: For 2024, you can contribute up to $7,000.00 per year unless you’re age 50 or older in which you can contribute $8,000.00.
  • Withdrawal Rules: Withdrawals from a Traditional IRA are taxed as regular income, and you’ll be subject to a 10% penalty if you take out money before age 59 1/2, unless you qualify for an exception. Additionally, you are required to start taking required minimum distributions at age 73.

 

Roth IRA

A Roth IRA is another popular retirement account, but it offers a different type of tax benefit. Unlike a Traditional IRA, your contributions to a Roth IRA are made with after-tax dollars, meaning you won’t get a tax break upfront. However, the big advantage is that your money grows tax-free, and you won’t pay taxes on your withdrawals in retirement. 

  • Who is it for?: The Roth IRA is perfect for those who expect to be in a higher tax bracket during retirement or for individuals who want to maximize tax-free income in their later years. It’s also a good choice if you think tax rates may rise in the future. 
  • Contribution Limit: Like the Traditional IRA, the contribution limit for 2024 is $7,000.00 per year, or $8,000.00 if you’re age 50 or older. However, there are income limits for contributing to a Roth IRA. For single filers, you have the ability to contribute, phases out once your income exceeds $146,000.00, but less than $161,000.00 and for married couples, the phase-out begins at $230,000.00, but less than $240,000.00. 
  • Withdrawal Rules: With a Roth IRA, you can withdraw your contributions (but not your earnings) at any time, tax-free and penalty-free. After age 59 ½, as long as your account has been open for at least five years, you can withdraw your earnings tax-free as well. Unlike a Traditional IRA, there are no required minimum distributions. With a Roth IRA, you can allow your money to grow tax-free for as long as you want. 

 

SEP IRA

The Simplified Employee Pension (SEP) IRA is designed for self-employed individuals and small business owners who want to save for retirement while providing a plan for their employees. SEP IRAs offer higher contribution limits than Traditional and Roth IRAs, making them a great option for those looking to set aside more money for the future. 

  • Who is it for?: The SEP IRA is ideal for self-employed individuals, freelancers, and small business owners. It’s also beneficial for employers who want to contribute to their employees’ retirement savings. 
  • Contribution Limit: For 2024, contributions can be made up to 25% of your compensation or $69,000. The ability to contribute significantly more than other IRAs makes the SEP IRA an attractive option for those who have the financial ability to do so. 
  • Withdrawal Rules: SEP IRAs follow the same withdrawal rules as Traditional IRAs. Withdrawals are taxed as regular income, and there’s a 10% penalty for early withdrawals before age 59, unless you meet an exception. RMDS is also at age 73. 

 

Which IRA is Best for You? 

Choosing the right IRA depends on several factors, including your current income, expected tax bracket in retirement, and financial goals. Here’s a quick guide to help you decide. 

  • Traditional IRA: Best for those looking to lower their taxable income now and defer taxes until retirement.
  • Roth IRA: Best for individuals who expect to be in a higher tax bracket in retirement or want tax-free income later in life. 
  • SEP IRA: Best for self-employed individuals and small business owners who want to contribute more toward retirement savings. 

 

At Porter Bank, we’re committed to helping you make informed decisions about your retirement savings. If you’re unsure which IRA is right for you, contact us to guide you through the process and find the best fit for your unique situation. 

Call 219-926-2136 today to learn more and start planning for a secure future!