Investing Basics
IRAs: Traditional vs. Roth

One of the most popular ways to save for retirement is through an Individual Retirement Account (IRA). IRAs are portable, meaning this type of account is not linked to your job. You decide when and if you want to move it, and you have a great deal of choice in how your IRA is invested.

There are two types of IRAs — a Traditional IRA and a Roth IRA. Both types of IRAs offer tax-deferred growth of your investments, but each offers different tax benefits.

Contributions to Traditional IRAs may be tax deductible, depending on whether you or your spouse participates in an employer-sponsored retirement plan. If neither you nor your spouse participates in an employer-sponsored plan, your entire contribution is deductible. If you do participate, the deductibility depends on your annual income and tax filing status. Distributions from Traditional IRAs are subject to income tax and, if taken before age 59 ½, a 10% premature distribution penalty may apply.

Contributions to a Roth IRA are not tax deductible, however, you may take income tax-free distributions from a Roth IRA if you are at least age 59 ½ and the account has been open for at least five years.

For more comprehensive information, including a comparison of a Traditional IRA to a Roth IRA, read the downloadable Helpful Tips guide, Building your Retirement Savings.