Tax Beneficial Accounts You Need to Use

One of the most proactive ways you can protect your personal finances is to take advantage of tax beneficial accounts such as a 401(k) and/or an IRA. Though these accounts are typically tied to retirement savings, this is not always the case. At Exchange Bank of Northeast Missouri we want to help you make the most of your money by offering these two account options:

Work Sponsored Retirement Account (401k): Many companies now offer this account as a corporate benefit. By automatically withdrawing pre-tax dollars from your monthly income, you are able to save for retirement before you even receive your paycheck. The funds you contribute, along with those matched by the company, can then be invested into a variety of options, pushing your money to continue multiplying. Since these funds are meant to act as retirement savings, any early withdrawals have a 10 percent penalty in addition to the income taxes due. However, once you reach age 59 ½, you can start taking regular distributions from this employer-sponsored plan.

Individual Retirement Account (IRA): This is a great example of a non-work sponsored retirement account. Generally offered in two versions, the Roth IRA and the Traditional IRA, both offer various tax incentives so you get the best bang for your buck. Each account has a contribution limit of $5,500 a year, or $6,500 for those age 50 or older.

In a Traditional IRA, you contribute pre-tax dollars into an interest-bearing account, which can then be invested into an array of opportunities to expand growth. However, if you want to remove funds from this account prior to age 59 ½, you will incur a 10 percent early-withdrawal penalty along with paying State and Federal taxes. At age 70 ½, the account requires you to begin taking minimum distributions. This retirement savings option is open to anyone who has earned an income of salary or wages.

With a Roth IRA there is no age requirement for distributions, and after five years, you can withdraw as much as you like up to the total amount of contributions. The only amount you cannot withdraw is the added interest earned after contribution. The main tax benefit with a Roth IRA, opposed to the Traditional IRA, is that contributions are post-tax dollars, but distributions bear no tax. This means if you are in a higher tax bracket upon retirement, you do not have to pay additional taxes to withdraw those funds, potentially keeping more of your savings. This account option does have an income limit, which disqualifies single filers whose adjusted gross income is more than $132,000, or $194,000 for joint filers.

Start maximizing your money and look into your account options today! Stop by Exchange Bank of Northeast Missouri and our team can answer any questions you have. With our experienced staff, we can help you choose the best accounts to get the most value out of your long-term savings.

Exchange Bank of Northeast Missouri

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