Individual Retirement Accounts (IRAs) can help you plan for retirement and for higher education expenses for your dependents. You may benefit from the tax savings and compound interest earnings of IRAs. Consult a tax advisor about the impact of contributions based on your individual tax circumstance.
Some differences between an IRA and a regular savings account are:
- An IRA allows you to contribute money into an account that holds earnings, tax-deferred, until you choose to withdraw your money. When you withdraw money from the IRA, you will have to pay taxes based on the tax bracket you are in at the time of withdrawal. In most cases, when you retire and you are over the age of 59½, you will be in a lower tax bracket than when you are working. With a regular savings account, interest earnings are not tax-free.
- Regular savings accounts can usually be withdrawn from any time. With IRAs, withdrawals are limited and may incur a penalty.
- IRAs have a set limit of contributions that can be made each year. With a regular savings account, you are able to contribute as much as you can afford each year.