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This post is brought to you by America Saves, a campaign managed by the nonprofit Consumer Federation of America, which motivates, encourages, and supports low- to moderate-income households to save money, reduce debt, and build wealth. Celebrate America Saves Week, February 25 – March 2, 2019. Set a Goal. Make a Plan. Save Automatically.

Saving for retirement now will ensure you have a comfortable standard of living when you stop or reduce the amount of hours you work. While retirement may seem a long way off, the earlier you start to save, the better, ideally in your first job.

You may be able to save for retirement at your workplace through an employer-sponsored 401(k), 403(b), or similar plan. If that’s the case, learn more about saving for retirement at work here. But if you are self-employed, your employer does not offer a retirement plan, or you’d like to save in addition to your 401(k), an IRA may be a good option for you.

Never heard of an IRA? You’re not alone. A recent survey by the Teachers Insurance and Annuity Association of America found that many people aren’t contributing to an IRA simply because they don’t know enough about them, and that’s especially true for young adults. Here are nine things you should know about IRAs.

What is an IRA?

An IRA, or Individual Retirement Arrangement, is any one of several tax-advantaged accounts designed to help you save for retirement. Unlike a traditional savings account in a bank or credit union that simply earns interest, IRAs can be invested in a variety of ways to potentially grow your savings over the long term.

There are two types of IRAs: traditional IRAs and Roth IRAs. The difference between them is the timing of the tax breaks you receive.

What are the tax advantages to an IRA?

Contributions to a traditional IRA are tax deductible, and withdrawals in retirement are taxed as income.

Contributions to a Roth IRA, on the other hand, are taxed, but earnings and withdrawals in retirement are not. Which one is best for you depends on if you expect your income tax rate in retirement to be higher or lower than it is today.

Who can open and contribute to an IRA?

Anyone under the age of 70 ½ who earns a taxable income can open and contribute to a traditional IRA. Roth IRAs have an additional income restriction. In 2018, single tax filers must have an income below $132,000, and married couples filing taxes jointly must have an income below $194,000, to contribute to a Roth IRA.

Many banks, credit unions, and other financial institutions will allow a custodial or guardian IRA to be set up for a child. This means that an adult guardian will control the assets in the IRA until the child reaches the age of 18-21, depending on the state. To be able to contribute, the child must have an earned income from a job, and cannot contribute more than that income.

How do I open an IRA?

Unlike an employer-sponsored retirement plan, you get to decide where to open your IRA, and you have many options. IRAs are offered by most financial institutions, including White Sands FCU.  You can open an IRA at White Sands FCU at any branch or by phone.

How much does an IRA cost?

A regular savings or share certificate IRA at White Sands FCU has no costs associated with it.  If you open an IRA with a brokerage firm or mutual fund company, look to the investment’s underlying expenses, including operating expenses and commissions. Then, look to whether the investment is managed by a financial professional. A good rule of thumb is to look for an IRA with fees below 1 percent.

How much can I contribute?

There are limits to the amount you can contribute to an IRA each tax year. In 2016, an individual age 49 and below can contribute up to $5,500, and an individual age 50 or above can contribute up to $6,500. However, you can never contribute more than you’ve earned in income for the year.

Can I contribute to someone else’s IRA?

You can only contribute to an IRA for a spouse, and only if you file a joint tax return.

When can I withdraw from my IRA, and how much?

You can withdraw from your IRA for retirement, or earlier if you are a first-time homebuyer or paying for higher education for yourself, your spouse, your children, or your grandchildren.

You can begin to take penalty-free distributions from your IRA at age 59 ½, as long as you made the first contribution at least five years earlier if you have a Roth IRA. Traditional IRAs actually require you to begin taking minimum distributions at age 70 ½, Roth IRAs do not.

If you are a first-time homebuyer, you can withdraw up to $10,000 from a traditional IRA without penalty as long as it covers qualified expenses. You will, however, need to pay taxes on it. But if you have a Roth IRA, you can withdraw up to $10,000 without needing to pay any taxes on the investment earnings, as long as you made the first contribution at least five years earlier.

All Roth IRA contributions can be withdrawn penalty-free and tax-free at any time at any age because you already paid taxes on them, but this doesn’t apply to the earnings.

Learn about the additional limited exceptions that allow for early distributions, including disability and military reservists called to active duty, here.

How do I invest my IRA funds?

IRAs give you the option of selecting how you want to invest your money, including regular IRA savings, IRA share certificates, stocks, bonds, and mutual funds. You can manage your IRA investments yourself, or you can have your investments managed for you by a financial professional.

Most savers are well-served by investing in a no-load, low-cost, broadly diversified mutual fund targeted at their expected retirement date. Target date funds are designed to be “set it and forget it” investments, taking greater risk with higher potential payoffs early on, but becoming more conservative the closer you get to retirement when you depend on the money.