Individual Retirement Account, commonly known as IRA for its acronym, is a good option to consider when you are planning for retirement since it is a saving account with attractive tax advantages. IRAs are recommended if your employer does not offer any retirement plan like a 401(k) or if you want to have an additional plan to save more for your retirement.

IRA can be opened in any bank or brokerage firm, either in person or online. The opening process is very simple and only requires having your social security number and beneficiaries as well as your basic personal information.

There are several types of IRAs, but the most used ones are traditional IRA and Roth IRA.

The traditional IRA is an excellent choice for anyone who wants to save for retirement and reduce the taxes at the same time.

In most of the cases, the money you contribute to this type of account can be deducted from your annual taxes. All these contributions, plus earnings are tax-free until you start making withdrawals.

For example, if your income is $30,000 in the year and you contribute $2,000 in IRA, you only pay taxes on the $28,000 while $2,000 in IRA will grow in your free tax bill until retirement.

Consider that if your income exceeds a certain limit, the contributions will not be tax deductible.

For you to be eligible for a traditional IRA, you must receive income that is taxable in the year and less than 70½ years old at the end of the year.

You can start making withdrawals after age of 59½ years old and they will be subject to ordinary income tax rate. If you make early withdrawals, they are also subject to 10% penalty, plus applicable taxes application.

The tax laws require traditional IRA to make a required minimum distribution to the beneficiary after 70½ years old.

Unlike traditional IRA, the contributions that you do in Roth IRA are not tax deductible, but on reaching retirement all your withdrawals are tax-free. In addition, for this type of account there is no age restriction.

Another difference is that in Roth IRA, your eligibility depends on your level of adjusted gross income.

The funds are available for withdrawal once you reach 59½ years of age, as long as the account has been established and has provided for a minimum of five years. Likewise, all early withdrawals are subject to a penalty of 10%.

No Minimum Distributions Are Required In Roth IRAs.

In short, the traditional Roth accounts allow postponing taxes on your savings while Roth IRA exonerates your tax savings. Each option has advantages and disadvantages that you should consider before choosing the type of retirement account you are about to open and much depends on your current situation and your long term goals. Therefore, it is recommended that you hire the retirement plan administration services at www.JoinWestern.com to make it a better and safer deal for your future.