Whether you’re planning to retire in a couple years or a couple decades, the one plan you should consider right now is a Roth Individual Retirement Account (IRA). And for many retirement savers, a Discover IRA Certificate of Deposit (CD) may be the right solution. An IRA CD can be vital to your financial future as a form of “retirement insurance.” Financial planners believe you should start contributing to an IRA CD as early as possible in your career, then maximize your contributions each year.
Discover IRA CDs make that easy to do. For example, you can rollover assets to a Discover IRA CD from an old workplace retirement account or another IRA. You also have your choice of contributing to either a Traditional IRA or Roth IRA. Additionally, if your company offers a retirement plan, you should talk to your tax professional about how much you should contribute and if you should take advantage of any matching funds.
It’s Never Too Late To Start Saving
First, decide at what age you’d like to retire – then determine how much money you’ll need each month to maintain your lifestyle. Online IRA savings calculators can help you figure out how much money you’ll need to live comfortably. Then, just start saving! The easiest way is to have money taken out of your paycheck or bank account and deposited directly into your company’s 401(k) plan and/or into an IRA CD.
You can open a Discover IRA CD with as little as $2,500; we offer flexible terms ranging from 3 months to 10 years, and deposits are FDIC-insured to the maximum amount allowed by law. There are two types of IRA CDs: Traditional and Roth. Which one you select depends on your age, income and if you’re enrolled in your employer’s plan. You should consult a tax advisor to figure out which type is best for you.
Traditional IRA CDs
There are two major advantages to a Traditional IRA. First, it’s funded with pre-tax dollars to reduce your overall taxable income, in other words, you pay fewer taxes today. Second, the funds in your Traditional IRA grow tax-free until you distribute them. You can begin distributing funds without penalty at age 591⁄2. If you distribute funds before then, you may be subject to an IRS 10% tax penalty on the withdrawn amount.
If you turned 70.5 before 12/31/2019 you are subject to the Required Minimum Distribution (RMD) rule and you must start distributing funds from your Traditional IRA. If you turn 70.5 in 2020 or following years, you are not required to take your RMD until you attain age 72.
Roth IRA CDs
Unlike a Traditional IRA, a Roth IRA is funded with after-tax income. And under current IRS rules, your contributions grow tax-free forever. Many financial planners counsel their clients to open a Roth IRA if they expect clients to fall within the same tax rate after they retire or when they are ready to make distributions.
One advantage of a Roth IRA is that that you’re allowed to distribute earnings from your account tax-free if you are 591⁄2 or older and have held the account for at least five years. If you distribute funds before you’re 591⁄2, your earnings may be subject to income tax and an IRS 10% penalty. Another benefit long-term investors enjoy is that Roth IRAs do not have the Required Minimum Distribution (RMD) rule that Traditional IRAs do. You are not required to distribute earnings after age 701⁄2, you can let your account grow tax-free. That’s why many people find a Discover Roth IRA CD so attractive.
If you are interested in finding your contribution and deduction limits, Discover can help you calculate how much you can invest each year.
Roth IRA Conversions
Current tax law allows you to convert a Traditional IRA to a Roth IRA regardless of your income and tax-filing status. While you’ll have to pay income tax when you convert your tax-deductible, tax-deferred Traditional IRA to a Roth IRA, the assets in your new Roth IRA will then grow tax-free forever.
As you can see, Discover’s IRA CDs offer a wide range of potential advantages for retirement saving, regardless of your current time frame or tax priorities. Thanks to their competitive rates, guaranteed returns, flexibility, and tax-advantaged benefits, Discover IRA CDs may provide one of the most convenient path to future financial security.
In addition to offering IRA CDs to help you grow your retirement savings, Discover also offers an Online Savings Account to help you with your short-term savings goals and a full range of CDs to help you save for the future. Open an account online in minutes or call our 24-hour U.S.-based Customer Service at 800-347-7000.
The article and information provided herein are for informational purposes only and are not intended as a substitute for professional advice. Please consult your tax advisor with respect to information contained in this article and how it relates to you.