There are many tools to use to plan for retirement and an Individual Retirement Account is one of them. There are two kinds of IRAs, traditional IRAs and Roth IRAs. Here are some quick facts about both of them:
- A traditional IRA is a tax-advantaged personal savings plan where contributions may be tax deductible.
- Generally, the money in a traditional IRA isn’t taxed until it’s withdrawn.
- There are annual limits to contributions depending on the person’s age and the type of IRA.
- With a traditional IRA, taxpayers must start taking withdrawals from their IRA when they reach age 72
- A taxpayer can’t deduct contributions to a Roth IRA.
- Qualified distributions to a Roth IRA are tax-free.
- Roth IRAs don’t require withdrawals until after the death of the owner.
* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov6
Footnotes and Sources
- IRS.gov, July 11, 2022