Understanding an IRA

Choosing the Right Tools to Build Financial Security in Your Retirement

When trying to save for retirement, taxes applied against the savings can eat into your retirement funds. As many advisers indicate that savers will need about 70 to 80 percent of their pre-retirement income, making sure that you can maximize your savings is central to any long-term plan. Fortunately, this is where IRAs come in. IRAs (Individual Retirement Accounts) are offered by financial institutions to offset the level of taxation against current savings into something more manageable, meaning that there will be more for you to use in your retirement. Managing your finances is already difficult enough after retirement, but with the help of your financial service provider, there are options in IRAs that can help you maximize your savings to make your retirement easier and more fulfilling.

Types of IRAs

One thing to keep in mind is that the type of IRA that you have will directly affect how your savings are taxed. Allocating your money in the right IRA can reduce your taxes depending on what stage of life you are in, as well as where your money is coming from, to facilitate maximum savings. Not every IRA is for every individual, so your financial service provider should be able to help find the right IRA for you.

Traditional IRAs

A traditional IRA is relatively straightforward, but it comes with a lot of qualifications. You can make contributions up to a certain income level (depending on whether you are single or married) and you can deduct the amount of your contributions from your taxes. You are only taxed on income you withdraw from the IRA after retirement, and you can contribute to your IRA up to 70½ years of age, after which you must start withdrawing from the account. The value of this is two-fold. First, you aren't paying taxes on the contributions pre-retirement. Second, if you find yourself in a lower income bracket after retirement, you would be taxed against at the lower rate.

Roth IRAs

Roth IRAs are somewhat different from the traditional IRA in that you pay taxes on the contribution, meaning that you don't have to pay taxes on the money that you withdraw after retirement. Roth IRAs have different and lower income requirements, and have considerably lower requirements on withdrawals (you can take out money as you please without penalty after the age of 59 ½. Traditional IRAs have an advantage for higher income levels, but Roth IRAs offer a lot more flexibility when it comes to paying out withdrawals, making personal finance management much easier.


For small business owners trying to save money for their retirement, a SEP IRA is designed to offer the advantages of a traditional IRA while also giving higher contribution limits overall. The SEP IRA is designed really for the entrepreneur who goes in alone, and can contribute tax-free into the IRA with higher limits. In other ways the SEP IRA works like a traditional IRA, which is taxed at the point of withdrawal. Best of all, outside a 25% cap of total income, your contributions can be structured based on how much income you are actually making.

Rollover IRAs

Rollover IRAs are not as common as other IRAs, but are used to move monies for investment vehicles such as 401(k) plans easily into an IRA. They are usually taxed after retirement and in other ways function much like a traditional IRA.

Which IRA is Right for You?

In the end, IRAs are financial devices that can save you a lot in the long term when it comes to preparing for retirement. Which one you choose depends on what is available to you based on your age and type of employment. If you find that you are in a position where you have a choice, make sure to make the most of the financial tools available to you to determine which is right for you. Choosing the right IRA will help you in the long-term, providing the maximum retirement income possible. By contributing to the right IRA now, you can be sure to spend your retirement years with more money on hand for a more fulfilling lifestyle overall.

Start planning for your future and give yourself some peace of mind with help from the financial representatives at CHROME Federal Credit Union. Our representatives can walk you through the pros and cons of any IRA, helping you understand what will work best to meet your retirement goals. Schedule an in-store appointment today, and let us offer you a simpler solution to your retirement savings.