Individual retirement accounts, or IRAs, are a type of savings account that offer tax advantages to help you save for retirement. Contributions to an IRA are typically tax-deductible, and the money in the account grows tax-deferred until you withdraw it in retirement.
There are two main types of IRAs: traditional IRAs and Roth IRAs. With a traditional IRA, you make contributions with pretax dollars, which reduces your taxable income in the current year. The money in the account then grows tax-deferred until you withdraw it in retirement, at which point you pay taxes on the withdrawals.
With a Roth IRA, you contribute after-tax dollars, so there is no up-front tax deduction. However, the money in the account grows tax-free, and you can withdraw it tax-free in retirement.
Both traditional and Roth IRAs have contribution limits, and there are income limits that determine whether you’re eligible to contribute to a Roth IRA. There are also rules around withdrawals from an IRA, including penalties for early withdrawals.
But overall, IRAs can be a valuable tool for saving for retirement. The tax advantages they offer can help you boost your savings and grow your nest egg. And if you’re not sure which type of IRA is right for you, you can always consult with a financial advisor.