Why get an IRA from a Credit Union?
Is saving for retirement stressing you out? You wouldn’t be alone. A recent study found that 55% of Americans are worried that they cannot reach financial security when retired.
So what causes the concern? Why are individuals not able to confidently save for their retirement? Another study posed this question to working women about why it is getting harder to retire and found:
77% said higher inflation
52% said workers typically now must fund and manage their retirement savings themselves
And 43% said the stock market is more volatile
With these results, opening an IRA through a credit union can be a meaningful solution.
What is an IRA?
An Individual Retirement Account (IRA) is a tax advantaged savings account specifically designed to help Americans who may not have retirement options provided by an employer. They can also serve as a savings tool for those who are looking to diversify their retirement portfolio. There are two main types of IRAs – a Traditional and a Roth.
Traditional: With a Traditional IRA, contributions are tax-deductible. This means that when tax season comes around, you can reduce your taxable income by however much you contributed to your IRA.
Roth: With a Roth IRA, contributions are tax-deferred. This means that when it comes time to access those funds later in life, you will not have to pay taxes on your qualified withdrawals.
The IRS sets a limit on IRA contributions to $7,000 for those who are 49 years of age or younger. For those who are 50 or older, the IRS enables a “catch-up” contribution of an additional $1,000 for a total of $8,000.
Similar to other tax advantaged retirement accounts, there are certain requirements that need to be fulfilled to make withdrawals without being penalized. To learn more specific details about this visit www.cafcu.org/IRA.
What makes a Credit Union IRA a stable option?
Often times when funds are contributed to an IRA, they can be put towards a variety of investment options within the stock market, such as individual stocks, bonds, mutual funds, ETFs, etc. While this can do well to diversify a portfolio, it also carries a larger risk when considering the return. As 43% of women identified in the survey above, the stock market is more volatile.
Alternatively, when an IRA is set up through a credit union like CAFCU, your contributions are invested into a share certificate. This means that you will get a guaranteed rate of return on your contributions without fear of losing value due to a shift in the market. And if that wasn’t enough peace of mind, accounts with credit unions such as CAFCU are insured for up to to $250,000 by the National Credit Union Administration (NCUA).
Share certificates are a tiered savings tool meaning that when you build a larger balance you can typically take advantage of a higher rate of return. This also comes into play when selecting the maturity rate of a share certificate. This means that if you selected a longer amount of time to leave your money in a certificate, then you are typically rewarded with a higher rate as well. This goes hand in hand with retirement accounts as the real growth comes from compounding interest over a longer period of time.
In the survey, 52% of women had said one of the challenges of retirement was funding and managing their investment accounts themselves. The simplicity of the share certificates helps eliminate this obstacle as only $1,000 is needed to establish the account. Individuals who choose to set them up will not need to worry about selecting the correct stocks or mutual funds to split that money between.
Getting Started
As with any retirement account, the important aspect is to just get started. It will be harder to capitalize on compounding interest the longer a person waits and establishing the habit of saving for long term goals will aid you in other life endeavors.
To learn more, check out these additional resources!