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Traditional IRA:
Traditional IRAs are specifically intended for retirement. Some big advantages of this type of IRA are that certain contributions are tax deductible in the year the contribution is made, and taxes due on the earned interest are deferred until the funds are withdrawn.
Roth IRA:
Roth IRA contributions are not tax deductible. On the other hand, while traditional IRA dividends are tax deferred, Roth IRA withdrawals are tax free IF the account holder has had a Roth IRA for more than five years; and is age 59 1/2 years or older; or the holder has become permanently disabled; or is purchasing a first home; or dies. Contributions can be made after age 70 1/2, and no withdrawals are required during the holder's life.
Education IRA:
An Education IRA gives flexibility to families saving for college tuition and other related expenses. Up to $500 per year can be deposited for each child under age 18. Anyone can make a contribution - parents, grandparents, friends - up to a total of $500 per year. These contributions are not tax deductible, but dividends earned are tax free. Plus, funds used for one child may be transferred to other children within the family without being subject to income taxes. |
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