Every month, The Capitalist Next Door will answer questions submitted by our members. If you would like to submit a question to our resident Capitalist, please click here to contact us.

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What is an IRA, and how can it benefit me?
(submitted by Nicole in Nashville)
An Individual Retirement Account (IRA) is a savings plan that helps you set aside funds for retirement. This type of account offers tax advantages that bank accounts and other savings plans do not, but is specifically designed to discourage access to the funds before retirement.

Anyone with taxable compensation (including salary, tips, commissions, and bonuses) is eligible to open an IRA, as are spouses of a working partner. There is no minimum contribution amount, and you can open an IRA at any age. Though retirement may seem too far off to consider as a teenager or young adult, the earlier you start an account, the greater the rewards over time.

There are 11 different kinds of IRAs, and the particulars of tax benefits and penalties are complex and specific to individual circumstances, so it’s important to talk through your options with an expert. Generally, the dollars you contribute to an IRA are not considered taxable income until you begin to cash out. That means you collect earnings on these dollars – pre-tax – every year your funds remain in the IRA. Second, you may be able to deduct some or all contributions made to your IRA, depending on your income tax filing status, adjusted gross income and employment status. And third, you may be eligible for a tax credit equal to a percentage of your contribution.

While IRAs offer some great incentives, there are rules you must follow to ensure you are saving as much as possible. Because the government wants to ensure you are saving for retirement, you will be penalized with a 10% tax if you withdraw IRA funds before age 59 ½. After age 59 ½, the government expects you to withdraw these funds before you reach age 70 ½. Funds that remain in your account after age 70 ½ may be subject to penalties.

The IRS’s website has additional helpful information on IRAs. Visit IRS.gov to learn more.

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We’re getting married this year. Should we have separate or joint bank accounts?
(submitted by Diane and James in Atlanta)
You are smart to evaluate this decision carefully, as money is the number one frustration for married couples, according to The Motley Fool. Like marriage itself, the decision to share a bank account is personal and financial, and there are some important factors to consider as you evaluate your options.

A joint bank account offers both partners unrestricted access to funds in the account, so either person can deposit or withdraw money, write checks and manage bill paying. On one hand, you enjoy the convenience of having your money in one place, available to both of you at all times. On the other, you must coordinate your payments to ensure you don’t overdraw the account, bounce a check or incur overdraft penalties.

Both parties will be held responsible for all actions relating to the account, so trust and communication is critical. If your partner has a shaky credit history, for example, you may want to think twice about sharing an account. And while every couple hopes to have a life-long marriage, you could find yourself broke or in debt if things don’t go as planned.

There are several types of joint accounts, and some are more regulated than others, so you will want to explore which option is the best for you. Ultimately, your mate is the most important person to talk to about how to manage your finances. Once you agree on your philosophy and approach together, you can talk through your options with a financial expert.

To learn more, click here.

A Quick Note: Neither AAPFI nor any of its writers are tax or legal advisors. It is suggested that you consult your personal tax or legal advisor before making tax or legal-related investment decisions.