An Individual Retirement Account (IRA) provides savings for retirement investors and can be an effective way to supplement your other long-term retirement savings. Investments in tax-deferred accounts can compound more quickly than those in taxable accounts.
Among their other features, Roth IRAs offer federally tax-free withdrawals and Traditional IRAs offer tax-deductible contributions to qualified investors. To determine your maximum contribution limit, please refer to the comparison chart.
Think of an IRA as a vehicle for your investments. You can choose to fill this vehicle with mutual funds, stocks, bonds, or other types of investments.
Two Types of IRAs: Roth IRAs and Traditional IRAs
Assets grow federally tax-free with a Roth IRA. This means you may not have to pay federal income taxes on your earnings, provided certain requirements are met. (Qualified Roth IRA distributions or earnings are also exempt from state taxes in some states.)
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59-1/2 may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
A Traditional IRA allows your assets to grow tax-deferred, meaning you won't pay any taxes on earnings until you withdraw the assets. For many investors, contributions to a Traditional IRA will also be tax-deductible.
Limitations and restrictions may apply.
The Roth IRA Is Often A Good Choice
You should now have a good idea as to which type of IRA may suit your situation. For some individuals, contributing to a LPL Financial Roth IRA may result in more retirement income than a comparable investment in a Traditional IRA.
On the other hand, even if you aren't eligible for a Roth IRA, anyone under age 70-1⁄2 who has compensation can take advantage of the benefits of a Traditional IRA, including tax-deferred growth and the potential for tax-deductible contributions. With either type of IRA, you may still come out ahead of a comparable taxable investment because earnings aren't eroded by taxes year after year.