Individual retirement accounts, or IRAs, offer incredible tax advantages that simple savings accounts can’t match. If you’ve just started thinking about retirement, understanding IRAs is essential for building your investment plan and getting the most out of your money. Below are answers to a few common questions you may have about the benefits of IRAs.

Answering Common Questions About IRA Accounts

What are the advantages of an IRA?

IRA accounts have unique features that can save you thousands of dollars in taxes and dramatically accelerate the growth of your investments. Traditional IRA accounts are funded with pre-tax money and are only taxed when you make withdrawals in the future.

For some investors, Roth IRAs may be the better choice. While contributions to Roth IRAs aren’t deductible, you won’t be taxed on withdrawals in the future, essentially making your investment gains tax-free.

Are IRAs the same as 401(k) accounts?

While traditional IRAs and 401(k) accounts do share some features, there are some fundamental differences. Most importantly, 401(k) accounts are offered by employers, while you can open an IRA at your local credit union. To maximize the tax benefits, many financial advisors recommend having both types of accounts.

Why are IRAs better than savings accounts?

Both Roth IRAs and savings accounts allow you to withdraw money later without a tax penalty, but IRAs have some clear advantages. The primary difference is the interest rate, with IRAs offering a much higher rate of return. Because your contributions are invested in mutual funds, money in an IRA can grow several times faster than funds in a savings account.

Can I access my money at any time?

While you may withdraw money from an IRA any time you like, there are significant financial penalties. Unless you qualify for an exemption, any withdrawals before you turn 59 ½ are subject to a 10% penalty and are taxed at the same rate as your other income.

If you’re looking into starting an IRA, head to Hawaii County Employees Federal Credit Union. Since 1933, the credit union has provided comprehensive financial services. Because they’re owned by their account holders, they  offer higher returns and lower fees than other financial institutions, leaving more for you to invest in your future. Visit their website to learn more about their savings accounts and IRAs, or call (808) 935-2969 to discuss opening an account today.