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What is an IRA?

Feb 16, 2022

A Proactive Financial Mindset

With several employers offering lower matches on m employee 401k plans, being self-reliant when it comes to your retirement planning is now more critical than ever before. An IRA or Investment Retirement Account is a tax-advantaged investment vehicle that Americans can leverage to save for retirement. IRAs may provide additional investment options over those offered through your 401k plan. Both 401ks and IRAs afford you the ability to invest or trade stocks, bonds, mutual funds and crypto while reaping the benefits of a tax-advantaged account. The beauty of an IRA is that you are not limited to the investment options provided by your employer, and you can potentially invest and grow your money tax-advantaged for years. That time can be essential when it comes to reaching your retirement goals.

The Snowballing Effect

Taking steps to set up and contribute to an IRA, may well end up being a critical, life-changing step toward working towards a potentially brighter financial future. In setting up an IRA, you are holding yourself accountable for saving and contributing money, growing and investing capital, and committing yourself to a long-term financial mindset. From a short-term perspective, you will sacrifice a portion of your income to contribute to your retirement account but will gain long-term peace of mind in your quest for financial prosperity.

The sooner you open an IRA account, the sooner you can start to contribute. While it is best to open an IRA at a young age, most investors of all ages can and should take advantage of the tax benefits of an IRA. If handled properly and given enough time, your retirement account can grow. At first, your investments may seem small and insignificant, but in time investments can compound and build upon themselves, becoming meaningful down the road after years of small contributions and the magic of compound interest on your investments. Like with any account, IRA investments must grow to reap the potential rewards, and that is not a guarantee.

What is the Difference Between a Traditional and Roth IRA?

The two most popular types of IRAs are Traditional and Roth. The key differentiator is the tax implications (link to this section in article #2). With a Traditional IRA, the money you contribute may be tax-deductible and is only subject to taxes when you withdraw your money. A Roth IRA is the opposite; your contributions are taxed up front and are non-deductible, however, you benefit by not paying taxes once you withdraw your money.

Choosing Between Traditional and Roth IRAs

To decide between a Traditional IRA and a Roth IRA, one should take several factors into account.

Key Characteristics Traditional IRA Roth IRA
Tax deductible contributions? Yes, immediate tax benefits if income standards are met. (Subject to change based on your employers qualified plan) Tax benefits are deferred, no deductions up front
Who can contribute? Anyone with earned income Anyone below the income threshold (link article 2)
Maximum Contribution $6,000 for those under 50 years old, $7,000 for above 50. (Subject to change based on income and filing status) $6,000 for those under 50 years old, $7,000 for above 50. (Subject to change based on income and filing status)
Are there withdrawal penalties? Penalty-free, subject to income taxes after age 59 1/2 Depends. There are no withdrawal penalties after 5 years if you are 59 ½ years of age or older
Which is optimal for me? Generally favored if you anticipate that you’ll be in the same tax bracket or lower at the time you begin to take withdrawals Most often best if you expect that your tax bracket will be higher at the time you begin to take withdrawals

Am I Eligible to Participate?

Anyone can take advantage of opening and contributing to a Traditional IRA. However, some investors in high income tax brackets can be subject to limitations on the tax deductions they receive (Subject to changes based on whether or not your employer has a qualified plan). Not everyone can contribute to a Roth IRA. For example, as of the writing of this article, if you are a single filer and you have income exceeds the current threshold, you will not be able to contribute the full amount or contribute at all. Check for the latest contribution limits. You will want to weigh the pros and cons of each IRA structure. Marital status, income tax bracket, age, expected withdrawal date and future income projections are some of the factors you should use to weigh your decision. Always consult your CPA prior to making an IRA decision. You can learn more about IRA limitations here.

Opening an IRA with TradeStation

At TradeStation, we pride ourselves on providing you with an IRA offering that gives you options and flexibility. Choose to trade or invest in several asset classes, including stocks, mutual funds, ETFs, futures and bonds. (Note that for some asset classes you may need to open a specific IRA). Benefit from TradeStation’s award-winning tools while enjoying lightning-fast trade execution.

Once you have opened your IRA account with TradeStation, you can contribute to your account via traditional funding methods such as sending a smart transfer, a check, wire, or electronic transfer (ACAT). You also have the option to transfer over an existing IRA or 401k account from another institution. Remember that IRAs are separate from other investment accounts that you may have already, so they require you to open a separate account.

Retirement planning and investing work better with time. Don’t Procrastinate, open a TradeStation IRA today!

Important Information

This is for informational and educational purposes only and is not a recommendation or endorsement regarding any investment. Past performance is no guarantee of future results.

Equities, equity options, and commodity futures products and services are offered by TradeStation Securities, Inc. The assets in your TradeStation IRA accounts are assets of a custodial IRA account established with a third-party IRA custodian selected by you.

Investing in securities also involves risks. Past performance is no guarantee of future results. There is a possibility that you may sustain a loss equal to or greater than your entire investment regardless of which asset class you trade (equities, options, futures, or digital assets); therefore, you should not invest or risk money that you cannot afford to lose. Before trading any asset class, first read the relevant risk disclosure statements on the Important Documents page, found here:


We do not provide, tax, legal or investment advice. Any potential tax advantages or benefits will depend on your circumstances. The information provided here is for information purposes only, it is not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations and does not resolve any tax issues in your favor. Refer to IRS Publication 590, Individual Retirement Accounts for additional information on IRAs in general and consult your tax professional about your individual tax situation.

Discover the advantages of opening an IRA with TradeStation

See also

Benefits of an IRA

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