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Learn about different types of IRAs and why they are beneficial.
What is an IRA?
An IRA (Individual Retirement Account) is an account set up at a financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis. The 3 main types of IRAs each have different advantages:
Traditional IRA - You make contributions with money you may be able to deduct on your tax return, and any earnings can potentially grow tax-deferred until you withdraw them in retirement.1 Many retirees find themselves in a lower tax bracket than they were in pre-retirement, so the tax-deferral means the money may be taxed at a lower rate.
Roth IRA - You make contributions with money you've already paid taxes on (after-tax), and your money may potentially grow tax-free, with tax-free withdrawals in retirement, provided that certain conditions are met.
Rollover IRA - You contribute money "rolled over" from a qualified retirement plan into this traditional IRA. Rollovers involve moving eligible assets from an employer-sponsored plan, such as a 401(k) or 403(b), into an IRA.
Why Invest in a IRA?
Many financial experts estimate that you may need up to 85% of your pre-retirement income in retirement. An employer-sponsored savings plan, such as a 401(k), might not be enough to accumulate the savings you need. Fortunately, you can contribute to both a 401(k) and an IRA. IRAs allow you to take advantage of tax-deferred or tax-free growth.
Quiz
https://quizlet.com/185220468/iras-flash-cards/
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