Guest Contributor: KristiLyn Wilkinson, M.S.
USU Extension Empowering Financial Wellness Program Manager
Welcome back to Part 2 of 3 in this series of financial health for women and “working out” your retirement! If you read Part 1, I know you are anxiously waiting in your stretchy pants to jump right in, so here we go!
What is an IRA? IRA stands for individual retirement account. There are two kinds of IRA’s, the traditional and Roth. I will break each of these down so you can decide which one is best for you.
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First, a few housekeeping items to discuss. Who can open an IRA? Anyone with earned income can contribute to an IRA. If you are currently a stay-at-home mom without any earned income you can open what is called a spousal IRA. Can I get a hallelujah that the government acknowledges the importance of unpaid work that is done in the home! To open a spousal IRA, you must be married and file a joint tax return. Second, how much money can you contribute to an IRA? For tax year 2020, you can contribute up to $6,000 ($7,000 if you are 50 or older). Note-if you make a lot of money the government reduces the amount you can contribute to an IRA, but for most people these income limitations aren’t an issue.
The main difference between a Roth and a traditional IRA is when you pay your taxes. With a traditional IRA, you can deduct your contributions on your tax return now, and you will pay tax on the money when you withdraw it during retirement. With a Roth, the money you put in now is post-tax so there is no tax break now, but the money grows tax-free and when you withdraw the money you don’t have to pay any taxes on it! Here are some important distinctions between a traditional and Roth IRA. You can find more detailed information at IRS.gov by typing IRA into the search bar.
Read Part 3 here
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