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The right account for your retirement savings

You're starting to build momentum in your career, and you might be on more solid footing financially than in your 20s — both for expenses today and for your needs in the future. While being years away from retirement, you can still begin to build on what you've worked hard to save.

Investing your savings in the right type of account is one way to do that. Traditional and Roth Individual Retirement Accounts (IRAs) are two types of accounts that may help you reduce your tax bill as you save for retirement.

Traditional IRAs and Roth IRAs

Even if you have a retirement plan at work, you can still contribute to an IRA. There are two main types of IRAs and each offers distinct features:

  • A Traditional IRA offers the potential for tax-deferred growth. You pay taxes only on investment earnings when you take a distribution, presumably during retirement, and your contributions may be tax deductible. 
  • A Roth IRA offers the potential for tax-free growth. Investment earnings are distributed tax-free, if a five-year waiting period has been met and you are at least age 59½, or as a result of your disability, or using the first time homebuyer exception, or taken by your beneficiaries due to your death. Since contributions to a Roth IRA are made
    with after-tax dollars, there is no tax deduction regardless of income. You must be at or under modified adjusted gross income (MAGI) limits to be eligible to contribute.

Deciding which IRA is right for you depends on some assumptions, including your tax situation and when you will need the funds. Some investors choose to have both a Traditional IRA and a Roth IRA. That way, there is both tax-deferred and tax-free income in retirement. Additionally, Roth IRA owners are not subject to required minimum distributions.

What’s the right move for you?