MONEY MATTERS: What is an IRA? What age can you use it?
We hear a lot about IRA'S but for most folks that aren't familiar with them what are they?
Effectively an IRA is an individual retirement account that you set up with a custodian or a trustee. And normally that is done with a bank or a mutual fund company and it allows you take and put money in on a pre-tax basis and it grows tax deferred basically for retirement.
Who is able to use an IRA?
Everyone is eligible, the rule is you can put to 100 % of your income up to $5,500 per year and if you are over 50 you can put an additional $1000 a year to make it $6500 a year.
When is it best to access that IRA? Most people know that it is designed for retirement but when should you start dipping into that?
Well the thing is since it is an IRA and the IRS gives us a tax advantage to go in there are some restrictions on coming out. The rules say you have to be 59 1/2 before you can take it out without a 10 % penalty. Generally people wait until they are 59 1/2 or 60 before they start using it.
Is there any tax advantage to having an IRA?
Absolutely, its a 100% deductible if you meet certain income restrictions and it starts to phase out if you have a pension at work and you make too much money than you can't deduct it, but if you don't have a pension at work there are no income limitations on it.