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IRAs: What They Are and How They Can Help You Achieve Your Retirement Goals

October 17, 2023 • 4 mins

If you’re thinking about retirement, congratulations! That’s the first step toward financial security in your older years. While your unique circumstances should determine how you invest your money, an Individual Retirement Account (IRA) may be a smart choice for your future.

A variety of IRAs are available for retirement planning—each with its own advantages for investors. From Traditional to Roth to Rollover accounts, here are the different types of IRAs to help you decide which option is right for you.

What is an IRA?

An IRA is an Individual Retirement Account. It’s an account set up at a financial institution that allows an individual person to save for retirement with either tax-deferred or tax-free growth.1

Types of IRAs

There are two main types of IRAs: Traditional IRAs and Roth IRAs, each has its own distinct advantages. To find out which account is right for you, check out the chart below.

How do I fund an IRA?

You can fund an IRA with annual contributions, transfer monies from another institution or “rollover” funds.

While your unique circumstances should determine how you invest your money, an IRA may be a smart choice for your future.

What if I withdraw my money early?

You’ll have to a pay a penalty — 10% of your withdrawal — for early withdrawal from your IRA. You may also owe income tax in addition to the penalty.

You can withdraw contributions early (but not earnings) from a Roth IRA without being subject to income tax or the penalty.

What is a "rollover" IRA?

A rollover IRA is an account that allows for the transfer of assets (directly or indirectly) from another plan such as a 401k, 403b, or 457.

Once you open an IRA, you can choose to include a variety of investments such as CDs, stocks, bonds, mutual funds, and more. The money you invest into your accounts today can lead to more money when you need it in retirement.

Certain IRS rules govern who can contribute to an IRA, so before opening one make sure you’re eligible. We also recommend that you talk to your tax advisor or one of our CFS Financial Advisors2.

Traditional vs. Roth IRAs

Traditional IRA Roth IRA
Contributions 1 Contributions may be tax deductible Contributions not tax deductible
Limit $6,500 or 100% of earned income if less Limit $6,500 or 100% of earned income if less
Catch-up $1,000 when 50 or older Catch-up $1,000 when 50 or older
Pre-tax contributions After-tax contributions
Withdrawals 1 Taxes deferred until withdrawal Tax-free distributions
10% IRS Penalty if under age 59 ½ Interest earned also tax & penalty free when account has been opened for 5 years and owner is age 59 ½ or older
Eligibility Members of any age with earned income during contributing year Members of any age with earned income during contributing year
Income Limitations None Yes
Roth has contribution limits and restrictions if Modified Adjusted Gross Income (MAGI) is above certain thresholds
Distributions Required Minimum Distributions (RMD) at age 73 RMD not required
25% penalty if not taken

1 Neither Patelco nor CUSO Financial Services, L.P. (“CFS”) provides tax or legal advice. For such guidance, please consult a tax and/or legal advisor.

2 Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Patelco Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.

Financial Advisors are registered to conduct securities business and licensed to conduct insurance business in limited states. Response to, or contact with, residents of other states will be made only upon compliance with applicable licensing and registration requirements. The information in this website is for U.S. residents only and does not constitute an offer to sell, or a solicitation of an offer to purchase brokerage services to persons outside of the United States.


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