There are two types of individual retirement accounts (IRAs).
Traditional IRA:
- You are able to deduct the funds contributed to a traditional IRA in the year that the contribution is made, which may result in lower taxable income and lower income taxes. (Subject to certain rules - see https://www.irs.gov/retirement-plans/ira-deduction-limits for more details)
- You are required to take minimum distributions from a traditional IRA in the year that you turn 70 1/2 and every year thereafter
- Distributions taken from a traditional IRA are taxable when the funds are withdrawn
Roth IRA
- Roth IRA contributions are NOT deductible when funds are added to the account
- Once you reach retirment age (currently 59 1/2), you are able to withdraw fund from a Roth IRA with no income taxes assessed on the withdrawals.
- There are no requiements to take distributions at any age
One of the big potential advantages to establishing a Roth IRA is that all gains are tax-free when withdrawn. This is your "reward" for using after-tax money to fund the account.
NOTE: The ability to contribute to either type of IRA may be limited if you are offered a retirement plan through work, even if you do not participate in the plan.
Either type of IRA can be established at almost any bank or other financial institution. More information about contribution limits can be found here: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-li...
