Think of an IRA (or Individual Retirement Account) as a savings account with some excellent tax advantages. In other words, the IRA is an ideal way to save for retirement, because you save on a tax-deferred basis.
An IRA is a good option if you’re one of the 55 million people who do not have a workplace savings plan. This is especially true if you’re an independent contractor, gig worker, or if you work for a small business.
Some people think that an IRA and a 401k plan are the same thing, but they are very different. A 401k is a type of employer pension plan, where the employer makes the decisions about investments offered and other financial management decisions.
Instead, with an IRA you have the freedom to determine and make your own retirement investment decisions, so you have more control over your retirement planning.
There are 5 important things about an IRA that you should know.
1- An IRA is not your investment. Instead, think of it as a bucket that holds your investments. Which means you have to select the investments in your IRA. Ideally you want a low-fee IRA bucket, with low fee investments inside.
2- There are no free IRAs. Beware of anyone offering a “free” IRA. You might be paying high fees on the investments in the IRA. And you might even be paying advisory fees.
3- Most anyone can contribute to an IRA. You can contribute up $6,000 annually, and if you are over 50 you can contribute $7,500.
4- You can contribute to a 401k and an IRA at the same time. The eligibility requirements for doing this depend on how much money you make, your marital status, and how much you contribute to your 401k plan.
5- When you open an IRA you must verify your identity. You must provide valid identification to comply with federal anti-money laundering guidelines.
If you’d like to get started saving for retirement today, check out how Icon works or click the “Get Started” link in the top right corner to sign up!