Options Traditional IRA or Roth IRA retirement plans as piggy banks.

An IRA is a great way to save for retirement, as these long-term saving and investment accounts are designed to build a nest egg. IRAs can be invested in on your own or through your employer. There are two types of IRA: Traditional and Roth. While they have their similarities, they have different ways of handling things like the timing of tax deductions.

Roth IRA

Contributions made to Roth IRAs grow tax-free and are deductible on both state and federal taxes. Withdrawing money from a Roth IRA does not have federal taxes or penalties, but early withdrawals will be taxed and the account may charge for an early withdrawal. Roth IRAs also typically don’t require you to withdraw a minimum amount of money at a certain age.

Traditional IRA

A Traditional IRA is an account to which you can contribute pre-tax or after-tax dollars, giving you immediate tax benefits if your contributions are tax-deductible.  With a Traditional IRA, your money can grow tax-deferred, but you’ll pay ordinary income tax on your withdrawals.  They function like personal pensions in that they restrict access to funds in return for tax breaks. If you choose to withdraw, you will have to pay taxes on your earnings and contributions.

Anyone over the age of 18 can contribute to an IRA, but there may be specific income limits for how much may be tax-deductible. Traditional IRAs generally require you to withdraw a minimum amount of money starting at the age of 72. If you make a withdrawal before you’re 59 ½, you may have to pay taxes on those earnings, plus 10% tax