LANSING, Michigan (WLNS) – You may be asking “do I need an IRA? What is an IRA? “Local money expert Stephen Schiestel is here to break it.
“The IRA is an abbreviation for ‘individual pension account,'” Schistel said.
An IRA is an account that an individual opens in their own name for their pension.
“One key thing to keep in mind is that the IRA is different from the 401k or 403b we may have at work. These types of accounts are opened by our employers, ”said Schiestel.
IRAs are divided into two categories: traditional IRA and Roth IRA.
Traditional IRAs are taxed after the account holder starts withdrawing from the account.
One of the advantages of traditional IRAs is that the owner can take a deduction in advance when you make your 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.
Basically, if you believe tax rates will be higher when you retire, you should choose the Roth IRA. If you believe it will be lower, a traditional IRA is preferred.
“The key thing I advise people to think about is that they both have money,” Schiestel said.
No one can predict where the taxes will be, he said.