Depending on whether you choose a traditional or Roth IRA, you’ll enjoy different tax benefits. With a traditional IRA, your contributions may be tax-deductible, and earnings in the account grow tax-deferred until you start taking withdrawals. A traditional IRA may be a good choice if you’re in a higher tax bracket now than you will be during retirement. With a Roth IRA, your contributions are made with after-tax money, so they are not tax-deductible, but earnings grow tax-deferred and withdrawals are tax-free, if certain conditions are met. You should carefully consider the age that you start taking withdrawals since taxes and penalties may be assessed prior to age 59 ½.
With both traditional and Roth IRAs, you can choose from a broad range of investment vehicles depending on your goals and risk tolerance. Your IRA can hold mutual funds; individual securities such as stocks, bonds and exchange-traded funds; and annuities. If you are considering an annuity, you should know that annuities do not provide any additional tax advantages when used to fund a qualified plan, such as an IRA. Investors should consider buying an annuity to fund a qualified plan for the annuity’s additional features, such as lifetime income payments, living benefits and death benefit protection.