An Individual Retirement Account (IRA) is a powerful financial tool designed to help individuals save for retirement while also enjoying potential tax advantages. Understanding what an IRA is can provide a way for you to invest money with the goal of accumulating enough funds over time to financially secure your future lifestyle. IRAs can be tax-free or tax-deferred and can be contributed to during the year based on the contribution limit established. IRAs, while beneficial, can be intricate for those who may be starting their savings journey, understanding the fundamentals is the first step to building a solid savings foundation.
The primary purpose of an IRA is to facilitate long-term savings goals. There are two types of IRA accounts that individuals can choose from: a ROTH IRA or a Traditional IRA, both offering tax advantages. Traditional IRA contributions may be tax- deductible, which can lower your taxable income for the contribution year. Investments in the IRA plan can grow tax-deferred, meaning you won’t pay taxes on earnings until you withdraw the funds. Roth IRAs allow contributions to be made with after-tax dollars, enabling tax-free withdrawals.
How does an IRA work?
Understanding how an Individual Retirement Account works is crucial for maximizing benefits. In 2025, individuals can contribute up to $7,000 annually, or $8,000 annually for individuals who are 50 years or older. To be eligible, you must have earned income, and contributions may be limited based on your income level if you or your spouse are covered by a retirement plan at work.
There are some withdrawal rules and penalties that come with IRAs, for example, penalty free withdrawals can only happen at age 59 ½. Early withdrawals may incur a 10% penalty, alongside regular income taxes. Certain exceptions apply, such as for first-time home purchases or qualified education expenses, but it’s vital to understand these rules to avoid unnecessary fees.
Opening an IRA
Any time you are looking for a retirement savings account, you should always discuss your options with a trusted financial advisor to ensure your plan meets your goals. At First Savings Bank, our staff can guide you through the process and open an account based on what you are looking for. Additionally, our dedicated financial advisors are available for a discussion to provide guidance on what options would be best suited for you. If you already know what type of IRA account you are looking for, stop by a location near you to open your account today.
*Consult with a financial or tax advisor on eligibility requirements for an IRA, which IRA type is best for your & contribution and catch-up amounts.
