IRA Questions and Answers | TIAA (2024)

FAQs

What questions to ask when opening an IRA? ›

An individual retirement account (IRA) is a tax-advantaged investment account that helps you save for retirement. Money invested in an IRA grows either tax-free or tax-deferred, depending on the type of account you have. The IRS calls these accounts individual retirement arrangements.

The bottom line

If you expect tax rates in the future will rise, either because your wealth and income will be higher when you retire or a change in tax law, consider Roth accounts. Also, be sure to talk with your CPA or tax professional about whether a traditional or a Roth IRA—or both—makes sense for you.

Roth individual retirement accounts (IRAs) offer several key benefits, including tax-free growth, tax-free withdrawals in retirement, and no required minimum distributions (RMDs). One key disadvantage: Roth IRA contributions are made with after-tax money, meaning there's no tax deduction in the years you contribute.

An IRA is an account set up at a financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis.

You can take distributions from your IRA (including your SEP-IRA or SIMPLE-IRA) at any time. There is no need to show a hardship to take a distribution. However, your distribution will be includible in your taxable income and it may be subject to a 10% additional tax if you're under age 59 1/2.

How does an IRA work? When you contribute to an IRA, you can choose to invest your money in the market or put it in an interest-paying account. As that money grows, it isn't taxed, so your savings could grow faster. The specific details and tax benefits of your IRA depend on if you choose a Traditional or Roth IRA.

Consider a Roth IRA

In general, if you think you'll be in a higher tax bracket when you retire, a Roth IRA may be the better choice. You'll pay taxes now, at a lower rate, and withdraw funds tax-free in retirement when you're in a higher tax bracket.

Where is the safest place to put an IRA? ›

The safest place to put your retirement funds is in low-risk investments and savings options with guaranteed growth. Low-risk investments and savings options include fixed annuities, savings accounts, CDs, treasury securities, and money market accounts. Of these, fixed annuities usually provide the best interest rates.

The IRS doesn't require a minimum amount to open an IRA. However, some providers do require account minimums, so if you've only got a small amount to invest, find a provider with a low or $0 minimum. Also, some mutual funds have minimums of $1,000 or more, so you need to account for that as you choose your investments.

While some IRAs have no minimum deposits, others may require an initial investment of $500 or $1,000.

One of the major factors in deciding to invest in an IRA is the cost of opening and maintaining an account. While there is no fee to open an account in most situations, there are plenty of fees to consider depending on what you plan on investing in.

Bank IRAs are ultra-safe investments. If you open one at a Federal Deposit Insurance Corporation (FDIC)-accredited institution, the funds you save in an IRA savings account or IRA CD receive deposit insurance up to the legal limit. Even if the bank were to fail, you wouldn't lose the funds saved in your IRA.

Starting an IRA early in life can significantly benefit retirement goals, as early contributions have more time to grow. People in their prime earning years (35 to 60) are encouraged to consider opening an IRA and contribute the maximum amount allowed to bolster their retirement savings.

The traditional IRA has no income limits for contributing, unlike the Roth IRA. Anyone can contribute, but your ability to deduct contributions may be reduced or eliminated depending on your modified adjusted gross income (MAGI), your filing status, and whether you, or your spouse, have an employer retirement plan.