Debunking the IRA myth

“You can’t go swimming right after you eat, or you’ll cramp!”
“Don’t swallow your gum! It’ll take seven years to digest.”
“There’s no need to open an IRA until you’re older – you’re nowhere near retirement.”

What do all these phrases have in common? You may be surprised to learn that they are all myths!  

While you might not be able to make up those extra minutes of swim time from summers past or the days you agonized over that swallowed piece of gum, it’s never too late to start saving for your future.

This month, our Savings Series is all about saving long term with a TTCU IRA.

Here's the breakdown:

  • An IRA (Individual Retirement Account) is a tax-sheltered account that allows you to save on taxes while saving for retirement or other needs. 
  • $25 minimum deposit for Individual Retirement Accounts
  • $1,000 minimum deposit for IRA Certificates
  • No required subsequent deposits, setup or maintenance fees
  • Dividends paid quarterly
  • Traditional and Roth IRAs
  • Traditional and Roth IRA Certificates (9- to 60-month terms available)

    You may see the word “retirement,” and immediately think that an IRA isn’t for you - especially if that event is decades away. I know I sure did. Maybe if they were called “Really Important Savings That Could Change the Course of Your Future” accounts, younger people might not be so quick to write them off.

    While it may seem reasonable (and definitely more fun) to be saving up for a big trip or even a big life purchase, like a home or car, saving for something as far off as retirement doesn’t seem as time-sensitive – but it can sneak up on you.

    A recent Edward Jones study revealed that 51% of current retirees said they should've started saving earlier in life and that they should've saved more.

    To dive even deeper into the benefits of our IRAs, I reached out to two TTCU experts – Falina T. (Riverside) and Jennifer W. (Branch Operations).

    How would you best describe an IRA to a member who knows nothing about them? 

    Falina: An IRA is an Individual Retirement Account, set up to help you save towards retirement.

    Jennifer: IRA stands for Individual Retirement Account. It is simply a type of savings account with possible tax advantages to help members save for retirement funds in the future.

    Why would you recommend an IRA?

    Falina: I would recommend opening an IRA as an additional source of income for retirement. The benefits of funding an IRA are that the interest earned is tax deferred (you pay taxes when you take a distribution from the IRA) and it could also supplement your other sources of retirement income.

    Jennifer: IRAs are an extra income source for a member when they retire.

    When would you recommend an IRA over another savings account?

    Falina: If you are earning income and want to put funds away for later years, an IRA is a good investment. A savings account is also a good idea, however the interest earned on a savings account is taxable in the year it is earned, while the IRA interest earned is tax deferred.

    Jennifer: Anytime someone doesn’t have any type of retirement account. I would recommend opening a Roth IRA or Traditional IRA to help with saving for retirement and for the tax benefits it offers.

    What are the benefits of an IRA?

    Falina: Tax-deferred earnings (interest); funds available for withdrawal to help supplement retirement income; may be tax deductible the year you contribute the funds (income restrictions apply); can be used to pay for education or a first-time home purchase, to pay medical premiums, or any other IRS (Internal Revenue Service) approved withdrawal reason.

    Jennifer: IRAs offer a tax-advantaged way to save for retirement, and depending on what type of IRA you use, an IRA can create a tax deduction when you make a contribution. Also, investment gains are tax deferred for a Traditional IRA or tax free for a Roth IRA. It’s important to note that the IRS does allow some exceptions for penalty-free distributions on IRAs if the member is under the age of 59½. First-time home purchase, pay for medical expenses, pay for education expenses, birth or adoption of a child are just a few of these exceptions.

    What would you say to member who thinks IRAs are just for when they’re older?

    Falina: An IRA is for anyone working and earning income. The sooner you contribute, the more funds you have for retirement, along with the tax benefit. For example: a 25-year-old who invests $6,500 per year until the age of 65 could potentially have a balance of $1,000,000 or more. A 45-year-old, investing the same amount until 65 would only garner a little over $250,000. It makes good business and financial sense to contribute sooner than later.

    Jennifer: They aren’t entirely wrong - IRAs are for older members to use as an extra source of income when they retire, but they should be started when they are younger. Opening an IRA early is beneficial because the member can then take advantage of the power of compounding interest over all those years.

    Anything else you’d like to share?  

    Falina: It’s never too early or too late to contribute to your own retirement fund and take advantage of the tax benefits. It makes planning for the future easier and is a great financial solution to help you when you are no longer working and want to enjoy your retirement years.

    Jennifer: Members will need to have earned taxable income to open an IRA. Our Credit Union Advisors are ready to assist them with their IRA needs.

    Interested in opening an IRA? We’d love to help! You can open an IRA with TTCU for as little as $25. As always, we’re here to answer all your questions and get you into the account that works best for you.

    In the meantime, you can calculate your potential savings here, or visit a branch to get started, today!