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Money Market IRAs: What You Need to Know

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When it comes to securing your financial future, planning for retirement is a big deal. But let’s face it – with so many different products and investment choices out there, it’s easy to feel overwhelmed. That’s where a Money Market Individual Retirement Account (or money market IRA) could help. It can offer a healthy mix of stability, accessibility, and potential tax perks.

If you want to learn more about money market IRAs – how they work, their pros and cons, and whether they might be a good fit for you – keep reading.

What are Money Market Individual Retirement Accounts (IRAs)?

With a money market IRA, it’s almost like blending a traditional IRA with the perks of a money market account. You get the stability and easy access of a money market account while still enjoying the benefits of a retirement savings plan.

Money market accounts are like savings accounts, but better – because they usually offer better interest rates. With a money market IRA, your money goes into low-risk investments, making it a safe bet for retirement savings.

In a money market IRA, your contributions are invested in low-risk securities, providing a conservative approach to retirement savings. That can make it an attractive option for individuals who prioritize safety and accessibility over potentially higher returns offered by riskier investments, such as stocks.

How do Money Market IRAs Work?

When you open a money market IRA, you're essentially setting up a retirement savings account with a financial institution, such as a bank or brokerage firm. Just like other IRAs, you'll make contributions to your money market IRA, either before taxes (traditional IRA) or after taxes (Roth IRA), depending on which type you go for.

The money you put into your money market IRA gets invested by the financial institution in low-risk, short-term securities like Treasury bills and certificates of deposit (CDs). These investments aim to give you a steady return on your savings while keeping your capital safe.

Unlike some retirement accounts that restrict your investment choices or penalize early withdrawals, money market IRAs offer more flexibility. You can usually access your funds without facing hefty penalties, which makes it easier to handle unexpected expenses or financial emergencies.

Pros and Cons of Money Market IRAs

Every savings strategy comes with its own set of advantages and disadvantages. Before deciding if a money market IRA is right for you, let’s review the pros and cons.

Pros of Money Market IRAs

Safety: Money market IRAs are considered relatively secure investments due to their focus on low-risk securities, making them suitable for individuals who prioritize preserving their capital.

Stability: In contrast to the volatility of stocks and bonds, the returns from a money market IRA tend to be consistently steady and predictable. This stability can offer reassurance, especially for those approaching retirement age.

Liquidity: Unlike some retirement accounts that penalize early withdrawals, money market IRAs provide greater flexibility. Typically, you can access your funds without facing significant penalties, facilitating easier responses to unexpected expenses or financial emergencies.

Potential Tax Benefits: Depending on whether you opt for a traditional or Roth money market IRA, you may benefit from tax advantages like tax-deferred growth or tax-free withdrawals during retirement.

Cons of Money Market IRAs

Potential Lower Returns: While money market IRAs prioritize stability and safety, they might yield lower returns when compared to riskier options such as stocks. If you aim for long-term growth, it's wise to explore diversifying your investment portfolio.

Inflation Risk: Given the conservative nature of returns from money market IRAs, there's a concern that your savings may not keep up with inflation over time. Balancing the desire for stability with the necessity for growth is crucial to ensure your retirement savings maintain their purchasing power.

Fees: Similar to any financial product, money market IRAs may be subject to fees. It's important to carefully review the terms and understand any associated charges for maintaining your account.

How do You Know if a Money Market IRA is Right for You?

Determining if a money market IRA suits your retirement savings depends on factors like your financial goals, comfort with risk, and investment timeline. If you value safety, stability, and easy access to funds, a money market IRA could be a strong contender, especially for shorter to medium-term savings goals.

Yet, if you're in it for the long haul and are open to embracing more risk for potentially greater returns, you may want to explore other investment options.

Money Market IRAs and More, at Armed Forces Bank

A money market IRA from Armed Forces Bank could be a great way to bolster your retirement savings plan with a low-risk investment option.

Ready to get started? Visit the Armed Forces Bank branch nearest you in order to open your new money market IRA account with Armed Forces Bank. Plus, don’t forget to take advantage of available resources such as financial calculators for retirement planning.

Member FDIC

A minimum deposit of $25 is required to open a premier money market account. Debit cards, ATM cards, or checks are not available because IRS regulations require withdrawals to be properly coded for IRS reporting requirements. A minimum balance fee of $10.00 will be imposed every month or statement period if the balance in the account falls below $1,000 on any day of the month or statement period. You will have view or inquiry only access to Digital Banking. An account statement will be provided monthly. You are limited per the IRS regulation regarding contributions based on age, income, and other factors. Early or premature withdrawals from an IRA may be subject to a 10% early withdrawal tax from the IRS. Closing your account within 90 days of opening will result in a $20 early closure fee.