When it comes to planning for retirement, it is essential to understand how each type of IRA works. As certain factors like contributions, tax deductibility, and withdrawals can affect your finances now and down the road, being aware of the IRA accounts can help you make wise decisions.
Remember, the best IRA for you depends heavily on your specific situation and goals. If you’re planning to open an IRA account but need assistance with it, worry not.
This guide has everything that you need to know about the IRA accounts:
IRA Limits
For 2024 and 2025, the IRS allows you to contribute as much as $7,000 if you’re younger than the age of 50, and the limit will be $8,000 per year if you’re 50 or older.
It is said that you must have earned income to contribute to an IRA. This can include a spouse’s income if you’re married and file jointly. By checking all the factors in advance, you can make an informed decision when planning to open an IRA account online with SoFi.
Types of IRAs
When it comes to choosing the right IRA, there are two primary types of IRAs: traditional and Roth. The traditional IRA doesn’t require that you pay taxes on your gains until you start taking withdrawals after turning 59.
Till that time, the money won’t be taxed yet; the traditional IRA keeps more money in your account over time. This will allow the money to compound at a faster rate.
However, the Roth IRA will require you to pay taxes now at your current tax rate. This will allow your earnings to grow tax-free. This way, if you anticipate being in a higher tax bracket in the future, the Roth is probably your best choice.
IRA Eligibility
With the traditional IRA, you should know that the tax deductions for your contribution amounts are limited for use when an employer-sponsored plan covers you.
There are more factors that you need to consider for IRA eligibility:
- Full Deduction Allowed
For the current year, 2025, individual taxpayers can take a full deduction when earning $79,000. A married couple earning less than $126,000 can make the full deduction.
- Partial Deduction Allowed
A partial deduction is available for single filers earning more than $79,000 but less than $89,000. A married couple making between $126,000 and $146,000 can apply for a partial deduction.
- No Deduction Allowed
For the maximum benefit, there is also a cap on the allowable modified adjusted gross income of a taxpayer to take deduction. If an individual’s MAGI exceeds $89,000 in 2025, they are not eligible to take the deduction.
The same goes for married filing joint taxpayers. If the spouse making the IRA contribution is covered by a workplace retirement plan.
IRA Cost
When it comes to opening an IRA account, you will need to visit a bank or an investment broker, in person or online. Remember, some online brokers offer no-fee IRAs other than the commissions for buying and selling with the account.
Others might charge a yearly management fee, even if they aren’t managing the account for you. Therefore, you should look for a no-fee IRA with 1% management.
