When it comes to retirement planning, making the right moves today can pay off significantly in the future, whether you’re just getting started or have been saving for years. More than half of Americans feel they’re behind on their retirement savings, according to a recent study. Individual retirement accounts can be one of the most effective tools for building a strong financial foundation, offering tax advantages and investment opportunities. Here’s what you need to know.*

What are IRAs?

At their core, IRAs are investment accounts created to help individuals save for retirement.

IRAs are structured to support long-term growth, offering tax-deferred or tax-free earnings. With investment options available — such as stocks, bonds, mutual funds, and certificates of deposit — IRAs also provide the flexibility to align your investments with your financial goals and risk tolerance.

Here’s a closer look at the two main types of IRAs:

Traditional IRA

• Tax-deductible contributions: Depending on your income and participation in a workplace retirement plan, contributions to a Traditional IRA may be tax-deductible. This means you might reduce your taxable income in the year you contribute, offering immediate tax benefits.
• Tax-deferred growth: Funds in a Traditional IRA grow without being taxed until you withdraw them, typically in retirement.
• Taxable withdrawals: When you withdraw money in retirement, it is taxed as regular income.

Roth IRA

• After-tax contributions: Contributions to a Roth IRA are made with after-tax dollars, meaning it won’t reduce your taxable income today. However, this offers a significant benefit later.
• Tax-free withdrawals: Qualified withdrawals from a Roth IRA, including your contributions and any earnings, are tax-free in retirement. This can be especially beneficial if you expect your future tax rate to be higher.
• Income limits: Roth IRAs have income limits that determine eligibility. If your income exceeds the limit ($246,000 for married couples and $165,000 for single filers), you may not be able to contribute directly but could explore strategies like a backdoor Roth IRA.

Annual contribution limits

Both Traditional and Roth IRAs have contribution limits set by the IRS. For 2025, you can contribute up to $7,000 annually (or $8,000 if you’re 50 years or older, thanks to a catch-up contribution).

Choosing the right IRA

Deciding between a traditional and a Roth IRA largely depends on your current financial situation and your expectations for the future. Each type of account offers unique advantages tailored to different needs:

• Traditional IRA: This option may be ideal if you’re looking for immediate tax relief. Contributions to a traditional IRA can reduce your taxable income, offering a potential tax break now. This is particularly beneficial if you’re in a higher tax bracket today and expect a lower one during retirement.
• Roth IRA: A Roth IRA may be better if you’re focused on long-term tax savings. Since contributions are made with after-tax dollars, you won’t get an upfront tax deduction, but your retirement withdrawal — including earnings — will be completely tax-free. This can be especially advantageous if you expect your income (and tax rate) to rise, or if you value the flexibility of accessing your tax- and penalty-free contributions at any time.

Are you saving enough for retirement?

While general rules of thumb (like saving 15% of your annual income) can provide a starting point, your needs are unique. Your savings goals depend on several factors, including:

• Your current age and desired retirement age
• Your expected living expenses in retirement
• Other sources of income, such as Social Security or pensions
• Inflation and healthcare costs

Tools like Chevron Federal Credit Union’s Retirement Nest Egg Calculator can help you estimate your retirement funds to see if you’re on track. Ready to open an IRA? Chevron Federal Credit Union offers both Traditional and Roth IRAs. You can get started today.

* Chevron Federal Credit Union does not provide tax or retirement savings advice. Please consult with a professional.