An IRA, or invidivdual retirement account, is a savings plan that allows a person to select specific tax benefits. There are many benefits to investing in an IRA, which is one of the most powerful retirement savings tools available to you.


Types of IRAs

Traditional IRAs and Roth IRAs are the major types of IRAs. As of 2019, an individual can make up to a 6,000 contribution.  Taxpayers 50 years and older can make an additional 1,000 contribution each year. Both also feature tax-defered growth of earnings, and offer a wide array of investment choices. Almost anyone can open a traditional IRA, but not a Roth IRA. There are some differences to note between the two.


Traditional IRAs

The only prerequisites that you must have to set up a traditional IRA are having taxable compensation, and be under age 70 1/2. Contributions may be tax deductible on your federal income tax return. The tax-deferred growth may be taxed on partial withdrawals, and there may be a penalty if you withdraw before age 59 1/2.


Roth IRAs

Even if you qualify to open up a Roth IRA, you may not be able to take full advantage of it. Your contributions are not tax-deductible, and you can only invest after-tax dollars in a Roth IRA. Qualified distributions, withdrawals from retirement accounts that do not result in early withdrawal penalties, will avoid the 10% early withdrawal penalty unlike the traditional IRA, and there are also no required distributions at any age.


Making The Choice

If you qualify for both, which type will be appropriate for your lifestyle and needs? A Roth IRA may be useful, for various reasons including, but not limited to the following; if you do not qualify for tax-deductible contributions, or to greatly minimize taxes during retirement to preserve the assets for your beneficiaries.