No matter your age, it’s smart to begin saving for retirement as soon as you land your first job. Yet, many people still wait. According to the latest Federal Reserve data, less than half of U.S. adults feel confident they’re on track with retirement savings.

If your employer offers a retirement plan like a 401(k), participating is the easiest way to get started. Even better, many employers match a portion of your contributions—typically around 6%. Skipping enrollment means potentially leaving free money on the table.

But what if your employer doesn’t offer a retirement plan, you’re not yet eligible, or you’re self-employed? You still have options. One of the best is opening an Individual Retirement Account (IRA). There are several types, but the two most common are the Traditional IRA and Roth IRA.

What Is a Traditional IRA?

A Traditional IRA allows you to contribute pre-tax income to a retirement account, where your investments grow tax-deferred. That means you don’t pay taxes until you withdraw the money, usually during retirement.

As of 2025, you can contribute up to:

• $7,000 per year if you’re under age 50

• $8,000 if you’re age 50 or older (includes a $1,000 catch-up contribution)

Key Points:

• Contributions may be tax-deductible, depending on your income, filing status, and whether you or your spouse is covered by a retirement plan at work.

• You can begin penalty-free withdrawals at age 59½.

• Withdrawals are taxed as ordinary income.

• You must begin Required Minimum Distributions (RMDs) by April 1 of the year after you turn 73, per the latest IRS guidelines.

What Is a Roth IRA?

A Roth IRA works differently: contributions are made with after-tax dollars, but qualified withdrawals are tax-free. That means once you hit retirement, you won’t owe income tax on the money you take out.

2025 Contribution Limits:

• $7,000 annually if under 50

• $8,000 if 50 or older

Income Eligibility (2025 Phase-Out Ranges):

• Single filers: $146,000–$161,000

• Married filing jointly: $230,000–$240,000

Other Rules:

• Must hold the account for at least 5 years before making tax-free withdrawals.

• Must be 59½ or older, disabled, or using the money for a first-time home purchase (up to $10,000).

• No Required Minimum Distributions during your lifetime if you’re the original account holder.

How to Choose Between a Traditional and Roth IRA

Choosing the right type of IRA depends on your income, age, and how you expect your tax bracket to change in the future.

• If you’re younger and expect your income (and tax rate) to increase, a Roth IRA may be the better option—you’ll pay taxes now, but avoid them later.

• If you’re older or nearing retirement, a Traditional IRA might make more sense, especially if you expect to be in a lower tax bracket when you withdraw.

Your goal is to maximize your after-tax retirement income, so it’s worth evaluating both options carefully.

Final Words

These are general guidelines, not financial advice. Consider speaking with a qualified financial advisor to determine the best strategy for your situation.

No matter which IRA you choose, you have until Tax Day (April 15, 2026) to make contributions for the 2025 tax year.

2025–2026 IRA Contribution Limits:

Want help getting started with retirement savings or opening an IRA? Visit your nearest Flanagan State Bank branch or contact us to schedule a personalized consultation.