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When you prepare for your retirement, you want to feel confident about how to best invest your hard-earned cash. You’ve heard about individual retirement accounts (IRAs), and you wonder why you should open an IRA if you already have a 401(k). Keep reading to learn more about both types of IRAs—traditional and Roth—and the benefits of opening an IRA.

Types of IRAs

Similar to a 401(k), you can choose between two types of IRAs. A traditional IRA allows you to defer tax payments on your investment until you retire and begin to make withdrawals. If you meet certain qualifications, the contributions you make are tax deductible, which saves you more money. This feature attracts a lot of people to traditional IRAs.

When you contribute to a Roth IRA, you pay taxes on that contribution at your current rate. After you contribute, however, you no longer worry about taxes with that investment. If you expect that you will eventually climb to a higher tax bracket, a Roth IRA might save you money. Additionally, you have more flexibility with early withdrawals when you invest in a Roth IRA instead of a traditional.

Benefits of IRAs

If you already contribute to a 401(k), why should you consider an IRA? A 401(k) is a wonderful tool to generate retirement savings, but it might not be enough to cover all your retirement expenses. If you want to feel comfortable about retirement, an IRA can help you supplement your other investments and put you at ease about the future.

IRAs provide another benefit—diversity. A favorite buzzword for investors, diversity might seem like a frivolous goal simply because the word gets thrown around so much. But investment diversity might be critical for your retirement. Putting all your proverbial eggs in one basket could result in disaster.

A 401(k) allows you to profit from your company’s matching policy and has a less restrictive contribution limit. On the other hand, an IRA provides multiple investment options, instead of the solitary account of a 401(k). Both types of retirement investments complement each other.

An additional benefit of both traditional and Roth IRAs is that they provide potential protection from taxes, but in different ways. As long as you choose the right type of Nasa Federal Credit Union IRA for your situation, you will end up saving tax dollars in the future.

Even though all the different retirement options might seem overwhelming, it’s essential to begin preparing for retirement as soon as possible. Both traditional and Roth IRAs offer the account holder many benefits, even if the account holder already has a 401(k). An IRA is an outstanding investment for your future that you can feel confident about.

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