Everyone talks about saving for retirement and how important it is to build a personal retirement nest egg, but far fewer people are actually saving.

Do they (and maybe you) know how easy it is to put aside money — tax free or tax deferred — using an Individual Retirement Account?

Before discussing the basics of an IRA, you should understand that not all IRA investments are the same. Your money can be placed in a CD IRA or, with the help of a financial advisor, can be invested into products that have the potential to produce higher returns.

So as a hypothetical example, if $20,000 were invested for 20 years at an annual return of 5%, the result would be an account worth $53,000. However, if that same $20,000 were invested at a 10% annual return, again for 20 years, the resulting worth would reach $134,000. That’s a difference of $81,000!

Of course, potential higher returns take on a higher risk, so your tolerance for risk plays a role in where you ultimately decide to place your investment. (Investments involve risk and you may incur a profit or loss.)

You also should decide what type of IRA is best for your financial situation. Our investment advisors will give you more details, but here’s a basic description of a Traditional IRA and a Roth IRA.

Roth IRA

Pay taxes now, not later.

Invest up to $4,000 ($5,000 if age 50 or more) annually of after-tax dollars and your money accumulates tax free.

Benefits…

• Take out contributions tax-free and penalty-free any time
• Withdraw earnings tax-free and penalty-free after 5 years and age 59½ (prior to that age a 10% penalty tax may apply)
• No mandatory withdrawal
• After 5 years in the account, withdraw up to $10,000 without penalty for a qualified first-home purchase
• If you’re age 70½ and still earning income, you can continue to contribute

Consider a Roth IRA if…

• You or your spouse work (even if you have a retirement plan at work) and you are
• A single tax filer with adjusted gross income (AGI) of less than $114,000, or
• Joint tax filers with AGI less than $166,000, or
• An unemployed spouse with joint AGI less than $166,000, or
• You have a Traditional IRA you may want to convert

Traditional IRA

Tax deduction now, defer taxes until later.

Invest up to $4,000 ($5,000 if age 50 or more) annually of pre-tax dollars and gain tax benefits.

Benefits

• A deduction on your federal income taxes
• Money grows tax-deferred until you withdraw it at age 59½ or later (earlier withdrawals may be subject to a 10% federal tax penalty)
• Withdraw contributions and earnings penalty-free for a first-home purchase and higher education costs (subject to certain limits)

Consider a Traditional IRA if…

• You don’t qualify for a Roth IRA and/or
• You or your spouse work and are under age 70½ (even if you have a retirement plan at work), or
• You have a short time before you expect to be in a lower tax bracket when you retire and you are
• A single tax filer with adjusted gross income (AGI) of less than $52,000, or
• Joint tax filers with AGI less than $83,000, or
• An unemployed spouse or one who isn’t in a retirement plan at work with joint AGI less than $166,000, or
• You’re not covered by a retirement plan at work

So if you’re looking for a retirement investment or looking to rollover qualified money into an investment plan, a Traditional or Roth IRA may be right for you.

The Investment Professionals at First Reliance Financial Services can answer all your questions about retirement investing and help you get started in the best plan for you. Don’t leave retirement funding to chance. To receive a free consultation, or if you have any questions, call 1.888.543.5510.