Lisa Moe Answers Your Top 10 IRA FAQs
Jan 24 2020
There are some things you should know about IRAs. Here are the answers to 10 of our most frequently asked IRA questions:
- What’s the difference between a 401(k) and an IRA?
A 401(k) is a retirement plan offered through your employer, and you open an IRA on your own through a bank or brokerage firm. You can have both a 401(k) and an IRA. A financial advisor can help guide you on where to put your contributions.
- How does an IRA work?
You can open an IRA at a financial institution, such as a bank or investment firm. Depending on where you open your account, you may be able to have money automatically deposited into your account. There are different types of IRAs: Some act like savings accounts, and others are a collection of investments. We highly recommend working with a financial advisor to help determine which type of IRA is right for you.
- What is the difference between a Roth IRA and a traditional IRA?
You contribute after-tax dollars to a Roth IRA, and the earnings can be withdrawn tax-free as long as you are age 59½ or older and have owned the IRA for at least five years. Contributions to traditional IRAs are sometimes tax-deductible in the year you make them.
Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax-free, as long as they are considered qualified. Limitations and restrictions may apply. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
- Can an IRA lose money?
It depends on what type of investment vehicle you have chosen. Certain investments, like bank CDs, are FDIC insured and don’t lose money, but typically have low rates of return. Mutual funds fluctuate in value and can lose money, but may make sense over time for a potentially higher rate of return.
- Is an IRA a good financial planning tool?
Contributing to an IRA is a good strategy for building your retirement funds – especially if it’s part of a multi-tiered approach that includes retirement options with different tax consequences, market fluctuations and interest-rate sensitivity.
- What can I invest in with my IRA?
With an IRA, there are a lot of different investment options, including stocks, bonds, mutual funds, annuities, CDs and savings.
- How much can I contribute to an IRA?
If you’re younger than age 50, you can contribute $6,000 in 2020. If you’re age 50 or older, you can use “catch-up contributions” to contribute $7,000 in 2020. Contribution limits can change each year.
- Why should I contribute to an IRA instead of a standard brokerage account?
The drawback to a standard brokerage account is that you may pay taxes on the money every year. To save on taxes, an IRA or Roth IRA lets you grow your money in two ways – by investing it and saving on taxes over time.
- What is the deadline for IRA contributions?
For the previous year, you can contribute to your account until the tax deadline of April 15.
- Can I borrow money from my IRA?
No, you can’t borrow money from your IRA. To avoid a 10% government penalty, you cannot take out IRA money until you reach age 59½.
I can help you decide whether an IRA is right for you, and a personalized plan from Bell Investments can help you navigate your journey to retirement.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk, including loss of principal. No strategy assures success or protects against loss.
Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker/dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. Bell Bank and Bell Investments are not registered as a broker/dealer or investment advisor. Registered representatives of LPL offer products and services using the name Bell Investments, and may also be employees of Bell Bank. These products and services are being offered through LPL or its affiliates, which are separate entities from and not affiliates of Bell Bank or Bell Investments. Securities and insurance offered through LPL or its affiliates are:
Not Insured by FDIC or Any Other Government Agency
Not Bank Guaranteed
Not Bank Deposits or Obligations
May Lose Value