Ben Franklin once said, “In this world nothing is certain but death and taxes.” That might be true, but Ben wasn’t able to open an IRA back then. If he had this option, he might have felt a little more lighthearted about paying the taxman. Individual Retirement Accounts (IRAs) are great for people looking to save money on their tax bill and boost their retirement savings at the same time.   

If the IRA world confuses you, don’t worry.  You are definitely not alone. Many of my clients felt intimidated when we first started discussing the subject of retirement or taxes.  Here’s a quick explanation of what an IRA is and what it can do for you.

What is an IRA?
An IRA is a retirement account you control. With an IRA, the contributions you make can grow either tax-free or tax deferred until you start receiving distributions when you retire. There is a yearly limit on the contributions you can make, but if you’re age 50 or older, you are allowed to make extra “catch-up” contributions.     

Many people mistakenly believe they can’t have an IRA if they participate in an employer-sponsored plan like a 401(k). The truth is, you can do both. And considering that social security likely won’t be enough on its own and people are living longer in retirement, I encourage you to take advantage of several options.

All these options can be taxing
The two most popular types of IRAs are Traditional and Roth. Both offer unique benefits to a person saving for retirement. Consider the Traditional IRA if you’re looking for a break on your tax return this year. That’s because you might be able to deduct contributions you make to this account.  

Whether you can take a deduction depends on a few factors.  For example, if you earn too much income, or already participate in a 401(k) or similar employer-sponsored retirement plan, you might not be able to deduct Traditional IRA contributions from your income.  

The Roth IRA is a good alternative for people who cannot make deductible contributions to a traditional IRA. With the Roth IRA, the tax break is on the back end. You cannot deduct the contribution, but earnings grow income tax free and withdrawals at retirement are normally tax free. However, there are income limits, so check with a professional to make sure you are eligible to contribute to a Roth IRA.     

It’s easier than you might think
You don’t have to be wealthy to open an IRA.  You can do it today with very little up front.  If you’ve changed jobs recently and still have money in an old 401(k), you can roll that money into an IRA without having to pay any penalties.  This is very popular. About half of all IRA savings started out in employer-sponsored plans.

You can also sign up for an automatic investment plan, which allows you to have regular deductions made from a checking account. These types of plans are great for people who don’t want to make one large contribution every year.

No matter what option is best for you, getting help from an experienced financial professional is essential. Don’t wait, because the longer you go without a plan, the less money you’ll have to enjoy in retirement.

Mark Czachowski is the local Cotton States agent, an affiliate of Country Financial.