An IRA is an Individual Retirement Account. All IRAs allow any earnings to grow tax-deferred which keeps more of your money working for you and allows these tax-advantaged accounts to grow faster than other similar taxable accounts. Other than a 401(k) or other employer-sponsored retirement plan, IRAs are generally regarded as one of the most tax-efficient ways to save for retirement. The most popular IRAs are Roth and Traditional.
Roth IRA...
Maximum Contributions
- $4,000 under age 50
- $5,000 age 50 and over
Tax Advantages
- Earnings may be withdrawn after age 59½ tax-free, provided the account has been open for 5 years
- Contributions can be withdrawn at any time without penalty
Withdrawals
- Earnings cannot be withdrawn without a penalty until the account has been open for 5 years
- No Required Minimum Distribution (RMD) at age 70½
Traditional IRA...
Maximum Contributions
- $4,000 under age 50
- $5,000 age 50 and over
Tax Advantages
- Earnings grow tax-deferred until withdrawal
- Contributions may be tax-deductible
Withdrawals
- Earnings and tax deductible contributions are taxed as ordinary income when withdrawn after age 59½
- A Required Minimum Distribution (RMD) must begin after age 70½
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