IRA accounts are a great way to save for retirement and protect your money in the long run. There is no set rule on when you must start saving for retirement, but it’s best if employees can begin investing early, so they have more time for their investments to grow. In addition, an IRA account allows individuals to determine how much of their income they want to put toward long-term savings.
In some cases, it’s also possible for an employee with a retirement account through work and one outside of their employer that works too. Here are a few IRA account facts every worker should know:
1 An individual can contribute up to $18,500 per year.
The contribution limits for traditional and Roth IRAs are the same in 2015 as they were in 2014: an annual maximum of $18,000 if you’re under 50 or a total of $24,000 if you turn 50 by the end of this year.
If you’re self-employed, this amount is reduced to just $12,500 a year.
2 You can contribute even if you’re not working.
The IRA contribution limit is the same whether or not you have a job—it doesn’t depend on your income. It does, however, require that you (or your spouse) make less than $116,000 annually in adjusted gross income.
3 You can use IRA money to buy a car.
This is one of the most common questions people have when they’re considering an IRA, “People do ask if you can use some of your IRA funds for non-qualified purposes like buying a new vehicle or early withdrawal from your 401(k) plan. The answer is yes, but you’ll owe income tax and a possible penalty on the amount withdrawn—usually about 20 percent if it’s not an early withdrawal.
4 There’s no “IRA deadline.”
One of the best things about IRA accounts is that there aren’t any deadlines for when you need to start contributing—it all depends on your goals and preferences. That said, it makes good sense to begin investing in IRAs as soon as possible so you can maximize the amount of money you’ll have when retirement rolls around.
5 You can contribute if you’re already retired.
It may seem counterintuitive, but it’s possible to make IRA contributions even after retirement—but the same income limits apply as during your working years (that is, less than $116,000 annually). You also need to meet some additional requirements for your contribution to count.
In conclusion, an IRA account is a great way to save for the future, but there are certain rules you should be aware of.