Regardless of your age, an individual retirement account should be a part of your finances. An IRA provides you with the proper financial planning you need to live comfortably into your older years. There are a variety of IRAs that have different advantages based on your employment and needs. Below are the three major types of IRAs to understand so that you can improve your financial planning.

The Various Types of IRAs

1. Traditional IRAs

The funds put toward traditional IRAs, or deductible IRAs, are eligible for tax deductions, which can benefit you financially. The contributions you put toward your traditional IRA decrease your gross income, which in turn decreases the amount of taxes you have to pay. If you don’t have a retirement plan sponsored by your employer, then a traditional IRA allows you to put funds toward your retirement no matter what your income is. 

2. Nondeductible IRAs

With nondeductible IRAs, any contributions are subject to being taxed during the year they’re deposited into the account. As a result, they do not decrease gross income as funds for traditional IRAs do. Nondeductible IRAs do have a considerable upside: When you remove funds from the account, you only pay taxes on any earnings from those funds. You can take funds out of the account without any fees once you’re 59 years old.

3. Roth IRAs

Roth IRAs tend to be the most well-known type of IRA. Initiated in 1998, the funds in these accounts are taxed as income during the year they are added. If you remove any funds from the account after you reach 59 years of age, you don’t have to pay taxes or fees on those funds. Roth IRAs also give you the freedom to leave the account untouched so it can be passed onto your children or other heirs.

If you have any questions about IRAs or other methods of financial planning, the professionals at First & Peoples Bank and Trust Company in Greenup County, KY, are here to help you. With 82 years of experience, they’re proud to be one of the last community banks in the area where you’ll always receive friendly, one-on-one service. Whether you’re looking to be approved for loans, want assistance with setting up a direct deposit, or are interested in making changes to your accounts, their team will treat you like family. They have six locations throughout the county, including ones in Russell, Flatwoods, Greenup, and South Shore. Give them a call at (606) 836-0211 or visit their website to learn more about how their bank can improve your financial planning situation.