Traditional IRAs offer the key advantage of tax-deferred growth, meaning that you won't pay taxes on your earnings or non-tax contributions until you have to start making distributions at age 72.With traditional IRAs, you invest more upfront than with a typical brokerage account. Both the traditional individual retirement account (IRA) and the Roth IRA offer key tax advantages. A traditional IRA allows you to deduct all or part of your contributions, depending on your level of income, and your balance increases with deferred taxes. With a Roth IRA, you invest the money after taxes, but you can withdraw money tax-free if you're at least 59 and a half years old and have owned the account for at least five years.
Plus, compared to workplace plans, you have access to more investment options. No matter what stage of life you're in, it's never too early to start planning for your retirement, as even the small decisions you make today can have a big impact on your future. While you may have already invested in an employer-sponsored plan, an Individual Retirement Account (IRA) allows you to save for your retirement in parallel and also potentially save on taxes. There are also different types of IRA, with different rules and benefits.
With a Roth IRA, you contribute money after taxes, your money grows tax-free, and you can generally make tax-free and penalty-free withdrawals after age 59 and a half. With a traditional IRA, you contribute money before or after taxes, your money grows with deferred taxes, and withdrawals are taxed as current income after age 59 and a half. The IRA, which became more popular as workers began to take control of their retirement savings, offers people the opportunity to save for retirement in a tax-advantaged account.