An Individual Retirement Account, or IRA, is an account that allows you to set aside money for retirement while getting a tax benefit. The two main types of IRAs are Traditional IRAs and Roth IRAs. Each type has a different set of tax advantages, rules, and limits that may make them the right choice for your situation.
Roth IRA Details
- You pay taxes on the money you put in the account, but withdrawals are not taxed.
- You can withdraw your contributions (but not earnings) at any time without taxes or penalties.
- After you reach age 59 ½, you can withdraw contributions and earnings without taxes.
- There are no age limits to open or contribute to a Roth IRA.
- There are no required distributions at any time.
- Eligibility and contribution amounts could be limited by your income.
Traditional IRA Details
- The money you put in the account may be tax deductible, but withdrawals in retirement are taxed.
- Contributions can be used to lower your taxable income.
- You must begin taking a minimum amount out of the account, called a required minimum distribution, at age 72.
- Distributions before age 59 ½ trigger a 10 percent early withdrawal penalty in addition to being included as taxable income, with a few exceptions for specific circumstances.
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