A traditional IRA allows you to defer taxes now and pay them when you withdraw money for retirement. If you suspect you'll be in a lower tax bracket when you retire, a traditional IRA can save you money in the long run and includes some special penalty-free withdrawals for certain purchases. You take before or after tax dollars and place them in an account. You can then invest that money in stocks, bonds, exchange-traded funds (ETFs), and other assets.
How your account balance grows over time depends on how you invest and how much you contribute to the IRA. See how to invest your IRA for simple investment strategies. No matter what stage of life you're in, it's never too early to start planning for your retirement, as even the small decisions you make today can have a big impact on your future. While you may have already invested in an employer-sponsored plan, an Individual Retirement Account (IRA) allows you to save for your retirement in parallel and also potentially save on taxes.
There are also different types of IRA, with different rules and benefits. With a Roth IRA, you contribute money after taxes, your money grows tax-free, and you can generally make tax-free and penalty-free withdrawals after age 59 and a half. With a traditional IRA, you contribute money before or after taxes, your money grows with deferred taxes, and withdrawals are taxed as current income after age 59 and a half. An Individual Retirement Account (IRA) is a tax-advantaged investment account designed to help you save for retirement.
IRAs are one of the most effective ways to save and invest for the future. It allows your money to grow tax-deferred or tax-exempt, depending on the type of account; see the table below. For people who anticipate that they will be in a higher tax bracket when they are older or have retired, Roth IRAs may offer a beneficial option, since the money is not taxable, unlike withdrawals from 401 (k) accounts or a traditional IRA.