What is an IRA and how does it work?
An Individual Retirement Account (IRA) is a tax-advantaged retirement savings account that individuals can use to save for retirement. It works by allowing you to contribute money to the account, where it can grow tax-free or tax-deferred, depending on the type of IRA.
What is the maximum contribution I can make to an IRA each year? The maximum contribution amount varies depending on your age and the type of IRA you have. For 2021 and 2022, the maximum contribution for those under age 50 is $6,000, and for those 50 and older, it is $7,000. Note that contribution limits may change from year to year, so it's important to check the current limits each year.
What are the different types of IRAs, and what are the differences between them?
The two main types of IRAs are traditional and Roth IRAs. The key difference between the two is how they are taxed. Contributions to traditional IRAs may be tax-deductible, and taxes on earnings are deferred until you withdraw the money. In contrast, Roth IRA contributions are made with after-tax dollars, but qualified withdrawals are tax-free. There are also other types of IRAs, such as SEP and SIMPLE IRAs, which are geared toward self-employed individuals and small businesses.
Can I contribute to an IRA if I already have a 401(k) or other retirement plan?
Yes, you can contribute to an IRA even if you have a 401(k) or other retirement plan. However, your ability to deduct contributions to a traditional IRA may be limited based on your income and whether you or your spouse have access to a retirement plan at work.
What is the deadline for making IRA contributions each year?
For most people, the deadline to make contributions for a tax year is April 15 of the following year. For example, contributions for the 2021 tax year must be made by April 15, 2022. However, there are some exceptions, so it's important to check the current rules and deadlines each year.
