There are three main types of IRAs
each with different advantages. Some think an IRA itself is an investment but it is a catch all account or vehicle in which you keep stocks, bonds, mutual funds, annuities, CDs and other assets.
you make contributions with money you may be able to deduct on your tax return and any earnings can potentially grow tax-deferred until you withdraw them in retirement.1 Many retirees also find themselves in a lower tax bracket than they were in pre-retirement, so the tax-deferral means the money may be taxed at a lower rate.
you make contributions with money you’ve already paid taxes on (after-tax) and your money may potentially grow tax-free, with tax-free withdrawals in retirement,
is a Traditional IRA intended for money "rolled over" from a qualified retirement plan. Rollovers involve moving eligible assets from an employer-sponsored plan, such as a 401(k) or 403(b), into an IRA.
The main difference is when you pay income taxes on the money you put in the plans. With a traditional IRA, you pay the taxes on the back end - that is, when you withdraw the money in retirement.
With a Roth IRA, it's the exact opposite. You pay the taxes on the front end, but there are no taxes on the back end. In both traditional and Roth IRAs, your money grows tax free while it's in the account.
Roth IRAs are more flexible if you need to withdraw some of the money early.
With a Roth IRA, you can leave the money in for as long as you want, letting it grow as you get older and older. With a traditional IRA, by contrast, you must start withdrawing the money by the time you reach age 70½.
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** Some of the Information on this site has been derived from different resources such as the National Financial Planning Association, Securities and Exchange and Commission, Department of Insurance and Investopedia
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