Save for Retirement

The Future is Closer Than it May Appear

Everyone deserves to enjoy their retirement, and a key part of making that happen is planning ahead. The sooner you start planning and saving for retirement the better.

What is an IRA?

IRA stands for “Individual Retirement Account” and is an account type that that helps you save and grow your money for retirement based on investments. Funds that you deposit into an IRA have tax advantages over funds you deposit into your standard checking or savings accounts.  

Who is it Good for?

An IRA can be a good fit for both people with and without other retirement savings plans like an employer-sponsored 401(k). An IRA may help you supplement your current savings plan and provide additional income in your retirement years. Tax benefits depend on the type of IRA, so it’s a good idea to explore and compare your options.

Find the Right Account

FCB offers several types of retirement accounts to help individuals plan for their future. While we’re happy to set up your accounts we recommend that you speak with a qualified tax consultant or accountant to discuss your goals and strategies.

Traditional IRAs

Traditional IRAs can be great for lowering your current taxable income while helping you save for the future. With a Traditional IRA, your deposits grow tax-deferred until retirement. You can think of this as a “Save Now, Pay Later” strategy.

Features

  • Provides an additional source of income at retirement.
  • Funds grow tax-deferred, which means you do not pay income taxes on interest, dividends, and capital gains until you withdraw funds.
  • Contributions may be tax deductible if you meet certain eligibility requirements
  • If you’re younger than 59½ you can make early withdrawals without penalty for first-time home purchase up to $10,000, qualified education expenses, death or disability, unreimbursed medical expenses, and/or health insurance if you’re unemployed
  • Withdraw without penalty

Considerations

  • There is a penalty for withdrawing funds before you are age 59½
  • You must begin taking required minimum distributions by age 70½
  • You must be younger than 70½ and have earned income to contribute

Contribution Limits

  • Under 50: Contribute $5,500 or 100% of your compensation for the year, whichever is less
  • If you’re 50-70 (not including the year you turn 70½) Contribute up to $6,500

Next Steps

Roth IRAs

Roth IRAs are often simpler and provide more flexibility than other traditional and employer-sponsored programs. This is great for individuals who can afford to save for retirement with after-tax income or may want access to their funds before retirement. You can think of this as a “Pay Now, Enjoy Later” strategy.

Features

  • Funds grow tax-free, which means you won’t pay income taxes on earned interest, dividends, and capital gains on funds as long as you follow the guidelines***
  • You can withdraw your contributions (not gains) at any time without a penalty
  • No minimum distributions at any age
  • Tax free distributions are permitted
  • You can convert a Traditional IRA to a Roth IRA

Considerations

  • Contributions are not tax deductible
  • Not everyone qualifies for a Roth IRA. There are earnings caps.
  • A 5-year holding period from the day of opening a ROTH IRA on all earnings to receive tax-free distribution of earnings

Annual Contribution Limits

  • Contribute up to $5,500 if you’re under 50
  • Contribute up to $6,500 if you’re 50+

Next Steps

SEP IRAs

A SEP IRA is a type of Traditional IRA designed for self-employed individuals or small businesses. SEP stands for “Simplified Employee Pension” and provides business owners a way to contribute to their employees’ retirement and their own. SEP IRAs can be a great option for sole-proprietors and freelancers.

Features

  • Contributions are tax-deductible
  • Contributions are taxed upon withdrawal
  • Flexibility means you can determine your contribution level based on your sales and income

Considerations

  • Only employers can contribute. Individual employees cannot contribute
  • Employees must be included in your plan if they are at least 21 years old, have worked for your business in at least 3 of the last 5 years, and receive at least $600 in compensation from your business during the year. You can establish less restrictive requirements for your participants if you wish. visit irs.gov

Annual Contribution Limits

  • Contribute up to 25% of net income up to the IRS limit
  • Contributions must be the same percentage of salary for all eligible participants

Next Steps


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Disclosure: 

Frederick County Bank does not provide tax advice or personal wealth management solutions. We highly encourage you to speak with an accountant, tax advisor, or wealth management professional about the right strategies for you and the tax and budget implications they have.