The two kinds of IRA retirement plans

Before we begin with the types and categories of IRA, one should be clear about what an IRA retirement plan is. IRA stands for Individual Retirement Account. It is a tax-advantaged account for people planning their retirements, which you can control and owe. The earnings that are generated from these accounts are further compounded until the money is withdrawn. Therefore, this makes IRA retirement plan fruitful for your retirement planning.

There are two types of IRA. Both of them provide almost the same and maximum contributions in the income.

  1. Traditional IRAs: Whenever you contribute in traditional IRA you reduce your taxable income of that year. In s traditional IRA retirement plan, you have the power to decide where your money is invested, whether in mutual funds, individual stock, etc. Once you have deposited your money in traditional IRAs, it is not advisable to withdraw them before the age of 59.5 as you will have to pay normal income tax plus 10% early withdrawal penalty, which can turn out to be a large sum of money even in emergency situations.
  2. Roth IRAs: In a Roth IRA, you don’t have the benefit of getting your taxable income reduced. It may seem as a disadvantage, but Roth IRAs allow you to withdraw money tax-free. They can turn out to be better benefit in emergency situations.

Since the tax advantages are huge in the IRAs, there are certain limitations in the investments. The government limits it to the annual investments. This limits the customer from tax saving tactics. So to decide whether you should invest in traditional IRA or Roth IRA, you should think for yourself whether you need to invest in IRA Retirement plans today or later in the coming years.

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