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IRA simply stands for “Individual Retirement Account.” AKA it’s a retirement savings account an individual can open. (Unlike a 401k where an employer has to sponsor the plan.) An IRA is a good option to consider for retirement because you do not want to leave your future underfunded! Similarly to the 401(k) plans, IRAs are also offered as Roth or Traditional.
Contributions to Traditional IRA’s are tax deductible, the money is tax deferred as it grows, and you pay tax down the road when you take money out of the plan. As of 2019, contributions of up to $6,000 are allowed per year, and $7,000 for those who are 50 years and older. There are no income limits to contributing to a Traditional IRA account.
The Roth IRA contributions are not tax deductible today, but the money you take out of the plan is tax free. As of 2019, contributions of up to $6,000 are allowed per year, and $7,000 for those who are 50 years and older. There is also something called the 5-year rule, which allows you to take distributions without paying federal taxes after having it for five years at age 59 ½.
Every individual’s situation is unique. If you are interested in learning more about these plans, or walking through which might make the best choice for you & your goals - don't hesitate to reach out today!