If a Millennial were asked about their current concerns, retirement savings would not likely be high on the list. This is understandable. After all, young adults have car payments to make, student loans, rent or mortgages, and other key expenses that rightfully take priority. However, it is also important not to neglect future needs. Any money saved away now will have the maximum opportunity to grow and build. This is why Millennials shouldn’t discount IRA options when they engage in financial planning.
What Is an IRA?
IRA stands for “individual retirement account.” It is a type of savings account that grows on a tax-free or tax-deferred basis, allowing you to retain as much of your interest earnings as possible. IRAs are divided into three main types.
Under a Traditional IRA, your contributions may be tax-deductible. Any earnings from the account do not get taxed until they are withdrawn. In most circumstances, since retirees are usually in lower tax brackets; this results in being able to keep more of your money than if the amount were taxed at the time it was earned.
The money you deposit into a Roth IRA has already been taxed and, consequently, it will grow and can be withdrawn tax-free. There are certain conditions that get attached to this money, usually something like you can’t withdraw more than you’ve put in until you reach a certain age. On the plus side, this means that you can tap a Roth IRA if you become hard-pressed to pay for large bills or debts.
A Rollover IRA is best understood as a transitional plan meant to move assets from an employer-sponsored plan like a 401(k) into a personal IRA. A Rollover IRA would follow the rules as whichever plan it is rolling into.
Advantages of IRAs for Young Adults
Although there are other types of savings approaches that young adults can take, there are certain advantages that IRAs provide for Millennials that shouldn’t be discounted:
- Roth IRAs are taxed at the time of deposit, and young adults starting out in their careers are likely in lower tax brackets (so they pay less)
- Full withdrawals can start at age 59.5, but you can delay and continue saving up to age 70
- You can invest in other sources, like stocks, bonds, or a 401(k), even with an IRA
- IRA contributions can earn a Saver’s Credit tax deduction for up to 50% of your contribution, depending on income status
- Fixed interest rates make IRA growth secure, predictable, and easy to calculate
- Rollover IRAs are useful for coordinating employer-sponsored plans from multiple sources or institutions, which are handy for if you are changing careers or fields
Look to LUSO Federal Credit Union for Individual Retirement Accounts in Ludlow
LUSO Federal Credit Union is a not-for-profit, member-owned financial cooperative dedicated to providing members with quality financial services and products, including individual retirement accounts, in Ludlow, Springfield, Chicopee, Westfield, and Hampton County, Massachusetts. We at LUSO pride ourselves on serving the financial needs of our members and helping them build savings that can support them well into the future.
Feel free to contact our Ludlow branch toll-free at 1-844-LUSO-FCU or our Wilbraham branch at 1-800-808-5876.