What is an IRA?
IRA stands for Individual Retirement Account. The purpose of it is to help people save for retirement through their paychecks. The two types of IRAs are Traditional and Roth.
Traditional: With a Traditional IRA, you can put pre-tax dollars away for retirement, which will later be taxed upon withdrawal.
Roth: With a Roth IRA, you contribute after tax dollars, but will not pay taxes at withdrawal.
How much can I contribute?
In 2020, for both a Traditional and a Roth IRA, you may contribute up to $6,000 or $7,000 if you are over the age of 50.
Can I borrow money from my IRA?
The answer is yes and no. While the IRS does not want you to borrow money from the IRA, you can take money out and roll it back into a retirement account. This must be done within 60 days of withdrawal from the IRA.
Who can have an IRA?
Any person who has earned income can have an IRA. Even if you already have a 401k through your employer, you may still be able to contribute to your own IRA. You can learn more about this on the IRS website under Publication 590.
Can I have both a Traditional IRA and a Roth IRA?
Yes, you can have both. However, you are still subject to the same overall contribution limit. It would need to be divided up over the two accounts.
Can I move my assets from my employer-sponsored plan to my IRA?
Yes, you can move your assets in this way. Some employer plans even allow you to directly rollover your IRA to your employer sponsored plans. Check with your employer to see their options.
Is there a penalty for withdrawing early?
If you choose to withdraw before the required age of 59 ½, your funds will be subject to a 10 percent tax penalty. However, there are some exceptions to this that you can learn more about here.