​The earlier you start saving for your retirement, the better off you will be. One of the most effective ways to save money for retirement on a tax-deferred basis is through an IRA or individual retirement account.

In this guide to IRAs, we will explain why you should invest, when you should start, and the benefits of an IRA account.

What is an IRA?

An IRA is an account that a financial institution sets up to allow individuals to save for their retirement. What’s unique about an IRA is that you get tax-free growth or tax-deferred growth of your savings.

In other words, while investments such as mutual funds, stocks, and ETFs are held in IRAs, they are free from taxation. There are three main types of IRAs: traditional IRA, Roth IRA, and Rollover IRA. All these have their unique advantages.

Why should you invest in an IRA?

Financial experts suggest that you would need around 85 percent of your pre-retirement income once you retire. Other savings plans such as your 401(k) may not be enough to meet your requirements after retirement. That’s where an IRA can help you.

With an IRA, you have an additional savings plan along with your employer-sponsored plan. You also have a wide range of investment options when compared to the employer-sponsored savings plan. More importantly, this is a tax-free or tax-deferred savings plan.

When should you start investing in an IRA?

The short answer is that you can start investing now, whenever you start earning an income, or when you want to start one for your child.

The objective should be to begin investing in an IRA in your prime earning years. This will help you build savings for your retirement. Saving as much as you can allows your retirement fund to grow and compound in value over time. You can also open a Roth IRA for your child to receive contributions for a minor who has earned income.

Advantages of an IRA account

1. Tax benefits: With the tax benefits in your IRA, your savings can grow and compound faster than they would through a taxable savings plan.

2. Ease of opening: There are no age limits for opening an IRA. All you need is to earn taxable income. You can open an IRA account easily through a bank or brokerage firm.

3. Wider range to invest in: With an IRA, you can invest in bonds, stocks, mutual funds, or ETFs. Other savings plans limit your potential range of investments.

4. Early withdrawal exceptions: Compared to a 401(k), an IRA offers some early withdrawal exceptions. For example, you can withdraw money for a first-time home purchase or to pay for college.

An IRA can be a powerful tool to help secure your financial future and achieve your retirement goals. Whether you are just starting your career or approaching retirement age, F&M Bank would love to help you get started on a path toward financial security. Visit any of our locations to get started! https://www.fmbanknow.com/location-hours/