What's an IRA?
In short, it's an account that allows your money to grow in a tax-advantaged way. Depending on the type of account you choose, you can pay taxes now and watch your money grow tax-free—or you can defer paying taxes until retirement.
Why choose an IRA?
IRAs are built to help you pay for everyday things and even bigger dreams after your working years. They enable you to reduce the tax burden on your finances and allow you to save beyond an employer's retirement plan.
Traditional or Roth IRA?
A traditional IRA lets you deduct savings contributions from your taxes, which lowers your taxable income for the year -- but you pay taxes on the money when you withdraw it in retirement.
A Roth IRA uses after-tax money, meaning you pay taxes on the money when you contribute, then you can withdraw your contributions at any time, without paying taxes or penalties.
| Traditional IRA | Roth IRA |
|---|---|
| When do you pay taxes? | |
| In retirement, when you withdraw your savings. | Up front, before you contribute. Your earnings then grow tax free. There are no taxes or penalties on withdrawals made after age 59½.* |
| How much can you contribute? | |
| Up to $6,500. If you’re 50 or older, you can contribute an additional $1,000. | |
| Are there income limits? | |
|
You must have earned income, but there’s no maximum limit. |
To contribute the full amount allowed by the IRS in 2023, your income must be below:
|
| Are there rules around withdrawing your money? | |
| You can withdraw earnings penalty-free at age 59½, or earlier for certain hardship situations. | |
|
You have to start withdrawing money by April 1 of the year after you turn 72. Learn more about traditional IRAs |
You’re not required to withdraw your money at any age.(1) Learn more about Roth IRAs |
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Your account must be open for 5 years and you must be over age 59 ½ to be eligible for qualified tax-free withdrawals of earnings.
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