Difference Between an IRA and a CD

We all want to enjoy our retirement, but few of us know how to save. There’s a lot of technical jargon involved, but the basic concept is simple enough. Differentiating between an IRA and a CD is delicate business, as they are both very much alike. Let us first examine IRAs.

There are two types of IRAs, a traditional IRA and a Roth IRA, and the difference between the two is critical.

A traditional IRA (Individual Retirement Account) allows a person to save up for their retirement in a way that’s temporarily tax free. If you put money into a traditional IRA it will be deducted from your yearly income, which means the amount won’t be subject to taxation. If you are age fifty or over, you can contribute up to four thousand dollars a year into a traditional IRA.

If you withdraw your money from a traditional IRA before you are sixty, you’ll get hit with a ten percent penalty. Keep in mind that, regardless of when you decide to take the money out of your traditional IRA, once it’s out it’s taxable. Occasionally the ten percent fee for early withdrawal is lifted if you’re using the money for educational purposes or buying a house.

The second type is called a Roth IRA, named after the Senator William Roth. One big advantage of a Roth IRA is that you can take out your direct contribution Brand Viagra (the money you put in minus any profits) tax free whenever the urge strikes cialis cheap you, and you can collect the profits tax free after five years. The disadvantage is that Roth IRAs are not tax deductible, and the money won’t be subtracted from your yearly income.

Another disadvantage of choosing a Roth IRA applies to wealthy individuals. Possibly because the Roth IRA was created to lend a helping hand to middle class Americans, there is an income limit that you can’t exceed. If you make over one hundred and five thousand dollars per year, a Roth IRA is not for you. For joint filers the limit is one hundred and sixty six thousand dollars.

A CD (Certificate of Deposit) is a way to invest money that is insured by the banks. A CD is viewed as a safe and steady way to make money, as it generates more profit than a savings account but less than some risky investments. The best part about CDs is that they are mostly risk free, but it’s important to note that there are strict penalties for withdrawing the cash before the term ends.

Whether it’s in a CD, IRA, viagra alternatives over the counter or a 401k (where your employer contributes money to match your own), you should be putting away at least ten percent of your yearly income for retirement. Saving for retirement is the most important thing a young person can do. We work hard in the hopes that we can enjoy our golden years in financial security, but the only way that’s going to happen is if we start now.

Author Bio: Ronny Sikes wrote this article for Ratelines.com. Ratelines has been a valuable resources of investment information for nearly 6 years. For recommendations on great cd rates or different money market rates , please visit his site.

Category: Finances
Keywords: cd rates, ira, personal investment, roth ira, traditional ira, certificates of deposits