Traditional IRA

If you’re under age 70 1/2 with earned income, you’re eligible to make a contribution to a traditional IRA, regardless of your income level. This account allows you to make pre-tax contributions and defer taxes on their earnings until they are withdrawn when you are near retirement. This reduces your overall tax payments—provided your tax rate is lower at the time of withdrawal than when you invest, which is true for many people. Only invest in an IRA if you are sure you will not need to withdraw the money early, as an expensive penalty will apply.

• Certain contributions are tax deductible in the tax year for which they are made.

Roth IRA

Roth IRAs differ from traditional IRAs because the contributions are made in after-tax dollars. The money grows tax-deferred, and if you meet certain requirements, you get to take the money out of retirement, income-tax free.

• Because you pay tax on your Roth IRA contributions in the year you earn them (instead of when you withdraw them), Roth IRAs are often considered a good tool if you expect to be in a higher tax bracket when you retire than you are now.
• A Roth IRA can be a powerful tool to build wealth for your estate and give the benefit of tax-free income to your heirs, too.

Education IRA

Like traditional and Roth IRAs, Education IRAs are also tax-deferred investment instruments. They allow you to save money for the future education expenses of a designated beneficiary, usually a child or grandchild. This investment is a good choice if you want to help pay for a child’s education and you want your earnings to grow tax-exempt.