Retirement Accounts (IRA)

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roth and traditional IRA

Q: What is an IRA?
   A: An Individual Retirement Account, or IRA, is an account established to save and invest money for retirement (provided you’re eligible), with potential tax benefits. The two basic types are the Traditional IRA and the Roth IRA. Each has slightly different rules and benefits.

Q: What’s the difference between a Traditional IRA and a Roth IRA?
   A: In a word: taxes. Basically, the difference lies in whether you pay taxes on money the year you put it into your IRA account, or pay taxes when you take distributions (when you take money out of your account.)

If you earn $50,000 a year and are eligible to put $2,000 in a Traditional IRA, you could be able to deduct the contribution from your income taxes (meaning you will only have to pay tax on $48,000 in income to the IRS.) At age 59-1/2, you may begin withdrawing funds but will be forced to pay taxes on all amounts withdrawn from the IRA.       On the other hand, if you put the same $2,000 in a Roth IRA, you would not receive the income tax deduction. If you needed the money in the account, you could withdraw the principal at any time (although you will pay penalties if you withdraw any of the earnings your money has made .) When you reach retirement age, you could then withdraw money 100% tax free.

Deciding whether to open a Roth IRA or Traditional IRA is a major decision with potentially large financial consequences. Both forms of the IRA are great ways to save for retirement, although each offers different advantages.

TRADITIONAL IRA ROTH IRA
  • Tax deductible contributions (depending on income)
  • Withdrawals can begin at age 59 1/2 and are mandatory by 72 (early withdrawals may be subject to an IRS penalty)
  • Taxes are paid on withdrawals from the IRA
  • Available to everyone; no income restrictions
  • All funds withdrawn (including principal contributions) before 59-1/2 are subject to a 10% penalty (subject to exception)
  • Contributions are not tax deductible
  • No mandatory distribution age

  • All earnings and principal are 100% tax free if rules & regulations are followed

  • Available to single-filers making up to $144,000 for the tax year 2022 or married couples filing jointly making a combined max. of $214,000 for the tax year 2022 annually

  • Principal contributions can be withdrawn any time without penalty (subject to minimal conditions)

Q: Where Can I Open an IRA?
   A: IRA’s of both types can be opened through Bath State Bank. It requires no more than a few minutes of a visit with Michelle or Laura.

Q: How Much $$$ Do I Need to Open an IRA?
   A: For 2022 (for April 15th, 2023 taxes): You can open an IRA at Bath State Bank for $50. The 2022 IRA contribution limit for someone who qualifies with earned income is $6,000 under age 50. Over age 50 is a limit of $7,000 with earned income. 

Q: What if I have questions about IRAs?
   A: Simply call us at 765-732-3022 or 800-463-7464, and ask to speak with Michelle or Laura.