LANSING, Mich. (WLNS) – You might be asking “do I need an IRA? What is an IRA?” Local money expert Stephen Schiestel is here for you to break it down.
“IRA stands for ‘individual retirement account,'” said Schistel.
An IRA is an account that an individual sets up on their own behalf for their own retirement.
“One key thing for us to keep in mind is that an IRA is different than a 401k or a 403b that we may have at work. Those types of accounts are set up by our employers,” said Schiestel.
IRAs are separated into two categories: traditional IRAs and Roth IRAs.
Traditional IRAs are taxable once the account holder starts withdrawing from the account.
One advantage traditional IRAs have is that the holder can take a deduction upfront when you make a contribution.
When choosing between a Roth IRA and a traditional IRA, you have to ask yourself “Where is my tax rate today, and where do I think my tax rate will be when I retire?” said Schiestel.
Essentially, if you believe tax rates are going to be higher when you retire, you should choose a Roth IRA. If you believe they will be lower, a traditional IRA is preferable.
“The key thing that I advise people to think about is to have pools of money in both,” said Schiestel.
No one can predict where taxes will be, he said.