What is an IRA?

Being grown up means managing your money. Getting a steady paycheck is definitely a perk of being at a full time job but it’s so hard not to spend it all on a Forever 21 shopping spree or that one really cute pair of boots. Luckily, Reddit offers some pretty good advice when it comes to things I should be doing in my 20s, one of which is opening an IRA.

Reddit offers up a surprising (or maybe not so surprising) amount of very solid advice. r/askreddit is one of my favorite subreddits to read and I’m always learning a ton of life advice, or reading some interesting stories. The askreddit question that spawned this post was something along the lines of “What should I do in my 20s that will help me out later on in life?” One answer was to open an IRA.

So what exactly is an IRA? Lucky for me, my dad has a great grip on these financial shenanigans and he was able to sit down and explain it pretty clearly to me. Unfortunately, my memory is neither eidetic or without fault so even after our hour long discussion, some of the details are still a bit hazy. Cue Wikipedia + Google.

And IRA is an Individual Retirement Account. From what I understand (meaning what I’ve deduced from my Internet research), there are two types of prominent IRAs: a traditional IRA and a Roth IRA. What’s the difference?

A Traditional IRA: A traditional IRA can be opened by anyone employed and there’s a yearly cap of $5500 a year (goes up for inflation every year). When you put the money in, it’s not taxed. Instead, the money is taxed whenever you decide to take it out. Because most taxpayers expect to be in a lower tax bracket when they retire, it’s sometimes advantageous to those who are starting their IRAs later and are making a higher income.

A Roth IRA: The main difference between a traditional IRA and a Roth IRA is when the money is taxed. With a Roth IRA, the money is taxed right as you put it in. So you’re putting slightly less in at the beginning but when you take out the money, it won’t be taxed again. Personally, this is the choice I’m planning on going with because my taxes are low right now. My first job out of college means I don’t have a spectacular income and therefore, lower taxes.

So there you have it, the main difference between the two and one of the things to do while you’re still in your twenties. This post has been sitting here for ages and it’s finally written up. I really need to get on this blogging thing again.