It's Called an IRA for a Reason
Because women earn less, live longer and sometimes put their careers on pause for caretaking, they should pay close attention to wealth building. As we work hard for the money we get, women should always be looking for ways to keep it, save it and grow it. The most efficient way to increase your money is through tax-advantaged accounts, which include 401k/403b accounts, IRAs, HSAs, 529s and more.
One tax-advantaged account we encourage all women to have is an IRA. Jobs and employer plans will come and go, but an IRA is foundational. IRA stands for Individual Retirement Account; the contributions and retirement withdrawals are specific to you as the account holder. Even if you and your partner combine your finances, you should get in the habit of personally tracking your own IRA so it is invested and grows to match your life span and income needs.
IRAs have many great features and some tips for women to take advantage of them are outlined below. IRAs are:
Portable - every time you change jobs, you can roll over most retirement accounts into an IRA. Consolidation of retirement assets into one place improves engagement, visibility and planning.
Because women earn less, they need to actively manage their investments to make up the gap. Having all retirement accounts in one place provides a sense of control and makes projections easier.
Flexible - you can easily transfer your account between financial institutions. You can also open both a Traditional IRA and a Roth IRA (subject to certain income caps) to take advantage of the different tax incentives that are offered for each account.
Roth IRAs are desirable because earnings and withdrawals are tax-free. As women may have less retirement savings, the option of tax free withdrawals will help extend these assets.
Remarkable - because IRA earnings (increases in mutual fund or stock values, reinvested dividends, interest, etc.) are tax-deferred, these accounts grow exponentially more quickly than a regular savings account. Even small amounts, if given years to grow, will accumulate into significant assets.
Even in years of part-time employment, add to your IRA investments to take advantage of compound interest and potential tax breaks on Traditional IRA contributions.
Accessible - open an IRA with as little as $1 and, as long as you have taxable earnings in a given year, you can add up to $6,000 to new or existing IRA accounts every year (up to $7,000 if you are 50 or older). You can contribute to a 401k and an IRA in the same year.
If you got a late start on saving, take advantage of “catch-up” contributions in your IRAs.
When you make withdrawals from an IRA later in life, those amounts are based on your account balance and life expectancy, among other factors. You are an individual and you should make your own decisions about your retirement.
Save as soon and as much you can and invest it in tax-advantaged accounts including the highly adaptable Traditional IRA.
Managing your finances can seem scary and confusing. Need help understanding the rules for these accounts? Want to talk through your rollover strategy? Smart Sister Finance offers classes, workshops and individual coaching to cut through the man-splaining and the jargon to help women secure their financial futures.
Bridget Jones is the Founding Sister of Smart Sister Finance which promotes financial confidence for womxn through knowledge and conscious life choices. Join the community of smart sisters @SmartSisterFinance.