Ask the Advisor: Should I Contribute to an IRA?

by Andy Han

Since 2005, Andy has been assisting Credit Union Members with their financial services. He’s passionate about educating Members and stresses that it’s critical they are comfortable with their personalized financial plan and understand how it works.

Many Americans are lucky enough to have a retirement savings plan through their employment. But if you don’t have that option, an Individual Retirement Account – or IRA – allows anyone with earned income to save for retirement. And if you’re self-employed, you can use an IRA to create your own retirement plan. In addition, there are special rules that may allow a stay-at-home spouse to contribute to one as well.

What are IRAs exactly?

First, an IRA isn’t an investment itself. Think of it as a container or basket where you can put all kinds of investments — such as share certificates, mutual funds, stocks, bonds, etc. —you get to decide what to invest in.

There are two kinds of IRAs. The first is a Traditional IRA, which is often touted come tax time, because it has the potential to reduce what you owe on your income taxes. The beauty of an IRA is it acts like a savings account with tax breaks, because your contributions reduce your taxable income, and your contributions are able to grow tax deferred until you start withdrawing it come retirement time. However, because your contributions are earmarked for retirement, you’ll incur early withdrawal penalties in addition to taxes if you withdraw funds before age 59 ½.

The second kind is a Roth IRA, and it uses after-tax contributions, allowing your contributions to grow tax free. Your withdrawals can be tax free too, if you follow the rules. While a Roth won’t help to reduce your taxable income at tax time since you are using after-tax dollars, you’ll still get the benefit of adding to your retirement savings tax free and have more flexibility to withdraw your contributions at any time, without penalties. However, earnings you make on your investment can only be withdrawn when you are age 59 ½ or older and have had your Roth for five years or longer, otherwise, you will incur taxes and penalties.

How much can I contribute to an IRA?

According to the IRS, for the 2020 tax year you can contribute up to a maximum of $6,000 if you’re under age 50, and if you’re 50 or older — $7,000. Also, you have until April 15, 2021 to open and contribute to either a Traditional or Roth IRA.  The amounts above are maximum annual limits for combined total contributions to both Traditional and Roth IRAs. Also, starting in 2020, you can contribute to both traditional and Roth IRAs after the age of 70 ½ as long as you have earned income.

Have investing questions? We can help.

SchoolsFirst Federal Credit Union has a team of financial advisors1 ready to help you plan or update your personal investment and retirement strategies. They can make recommendations based on your individual risk tolerance and investment time frames to help you achieve your financial goals. Speak with one of our investment professionals by visiting your nearest branch location or by contacting us at 800.462.8328, ext. 4116.


This article is for information purposes only. Please consult a qualified tax professional for tax advice on your specific situation.

  1. Schoolsfirst FCU advisors are registered representatives of CUNA Brokerage Services, Inc. Representatives are registered, securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor, which is not an affiliate of the credit union. CBSI is under contract with the financial institution to make securities available to Members. Not NCUA/NCUSIF/FDIC insured, may lose value, no financial institution guarantee. Not a deposit of any financial institution. CUNA Brokerage Services, Inc. is a registered broker/dealer in all fifty States of the United States of America. FR-2991667.1-0320-0422.

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Extra Credit provides general information to help improve our Member’s financial lives. Every situation is different, so please contact us for guidance on your specific needs. The advice provided in Extra Credit is not intended to serve as a substitute for speaking to a loan representative, financial advisor, or BALANCE counselor who can help tailor a solution for you.

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