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 Traditional, Roth, educational, rollover, direct transfer or direct rollover? What does it all mean? What is an IRA you ask? An IRA is an Individual Retirement Account. The government established rules governing this type of investment in order to encourage people to save for retirement. The creation stems from the early 1970s when NBC broadcasted a television special called The Broken Promise, which showed Americans the consequences of poorly funded pension plans. An IRA is a special account to hold assets or money for an individual’s retirement. While there are several different types of IRA accounts, they all in one way or another help individuals save for retirement by allowing taxpayers to reduce taxable income while saving for retirement.

The Benefits of an IRA

So, what do YOU get out of having an IRA? Well, there can be many important benefits to owning your own IRA! The major benefit to IRA’s is they allow your money to grow tax deferred and sometimes tax free. This is a major advantage because the money that would have been paid towards taxes can continue to accumulate in your account. The investments saved in this account grows, but also the cash you would have paid in taxes expands as well; allowing investors to save more and accumulate wealth faster. Different types of IRA’s allow taxes to be paid up front and investments to grow tax free.

After finding out “What is an IRA?” most people ask about the difference between Roth and Traditional IRAs. There are some very key differences between the two structures, most fundamentally between taxable retirement income and tax-free retirement income. Understanding the differences will help you understand which structure is best for your immediate and future needs. Any income produced by the Traditional IRA including interest, dividends, and capital gains are not subject to tax while still in the account but are subject to federal income tax upon withdrawal. With a Roth IRA, contributions are taxed at the beginning and grow tax free provided certain conditions are met.

So, is an IRA a good idea for you? Sure! I believe it is a good idea for anyone! It will help save for retirement! I know I would like to retire and live comfortably one day! It all comes down to which IRA is best for you? Talk to a tax advisor and ask them what they would suggest for you!