![]() You receive no break on your taxes today, but you get tax-free withdrawals in retirement. In exchange, withdrawals are considered taxable income.Ī Roth IRA, on the other hand, is funded with money you’ve already paid taxes on. This can help reduce your tax liability in the year you make contributions to your account. With a traditional IRA, you’re generally able to deduct some or all of your annual contributions from your taxable income. Traditional IRAĪll IRAs can be considered one of two things: traditional or Roth accounts, each of which comes with its own rules and tax benefits. IRAs also come with other tax benefits, too, depending on whether you opt to save in a traditional IRA or a Roth IRA. That’s why saving in a tax-advantaged account can help supercharge your retirement savings. If you made the same investment in a taxable brokerage account, you’d have just under half that amount, given the impact of income taxes and capital gains taxes from the trades required to manage your portfolio over four decades. This special treatment provides extra compound growth beyond what you’d see in a taxable investment account.Ĭonsider this scenario: If you invested $5,000 a year for 40 years in an IRA with a 7% average annual return, you’d end up with just over $1 million by the time you hit retirement. IRAs are invaluable tools for planning a financially secure retirement by allowing your money to grow tax-free. Anyone who earns income-and even certain people who don’t-can contribute money to an IRA. An IRA is a retirement savings account that provides you with tax-free investment growth and a range of other tax advantages.
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