Now that we’ve covered how to set retirement goals and maintain a savings account, I want to dive into accounts that are specifically intended to be long-term investments, and are typically used for retirement. While I believe having a healthy savings account can be a positive, these accounts usually come with higher rates, but they tie up your money for long periods of time. If you need help deciding between the many options out there, this blog will be a great place for you to start.
Traditional IRAs are fairly simple. Anyone can open one and contribute, no matter how much they are making. All of the money they contribute goes into the account right away, without taxes. However, taxes are then withdrawn when you deduct funds. You’ll earn interest on your contributions over time, and you generally cannot access your money early. You also are required to withdraw a required minimum distribution when you are 70 ½, even if you don’t need the money.
- Anyone can have one.
- You can withdraw up to $10,000 at any time for a down payment on a first home, or for other life-altering events, such as medical expenses.
- You have the withdraw money at 70 ½, and many people find that they would rather let the money grow than withdraw at this point.
- No matter when you take money out, it is going to be taxed.
A Roth IRA is a long-term retirement account. You are taxed on the money you contribute, but you aren’t taxed when you withdraw that money. You can withdraw your money (except for interest earned) at any time, but you have no requirements to ever withdraw. Roth IRAs can be inherited, as well.
- Because your contributions and not deductions are taxed, you always know exactly how much money you have.
- You can take out money earlier than a traditional IRA, although this can cause hardships down the line if you withdraw too much.
- Your current contributions are taxed, and you may end up paying more today than you would in the future.
- A significant amount of your money cannot be touched right away.
- If you make more than $133,000 as a single tax filer or $196,000 filing jointly with your spouse, you are ineligible to contribute.
CDs (or Certificates of Deposit) are a time deposit, which means you deposit a certain amount of money into an account and cannot touch it for a set time. If you withdraw early, you will receive penalty fees. CDs can have great interest rates, and this is typically dependent on the amount of time you have your money deposited in one. For example, a 12-month CD might have half the rate of a 72-month CD.
- If you want the flexibility of having your money back quickly, you can invest in CDs. To reap the benefits decades down the line, you would have to re-invest your CD money once it matures, so that you continue to earn interest on it.
- CDs aren’t specifically retirement accounts, so they don’t have the same kind of requirements that an IRA would.
- If you must have your money back early, you will receive a large fee. It does not matter why you withdrew.
- You may earn a lower percentage rate, but shopping around will provide the best deal.
Navigating retirement accounts can be difficult if you have never done it before. I suggest speaking with a financial advisor to get the best recommendation for your personal situation. Hopefully, these facts will at the very least point you toward the retirement account that you feel is best for you.