An IRA stands for Individual Retirement Account. Basically, it's a way you can save for retirement (money you'll need when you're unable to work), in addition to putting your money in an employer plan like a 401(k). The two most popular types of IRAs are Roth and Traditional.
A Traditional IRA is similar to a 401(k)- meaning the money you put in isn’t taxed yet. You’ll pay taxes on the money when you make a withdraw years down the line. Upside: it’s tax deductible now (which means it will help you pay less in taxes and could get you a higher tax return). Downside: if you’re planning on making a lot of money someday (like you should be!), you’ll pay more in taxes on it later. High income = high tax bracket. This is when a Roth IRA comes in handy.
A Roth IRA won’t help you out on your taxes now, but any money withdrawn from it in retirement will be tax-free! That’s because you’ve already paid taxes on the money before you put it in the account. If you already have a 401(k) with your employer, I recommend getting a Roth IRA. After all, what’s the second most important rule in investing (after using time to your advantage): diversify!
Now, to make it more confusing, there’s such a thing as a Roth 401(k). It’s like a hybrid between-as you may have guessed- a Roth IRA and a 401(k). Your employer may offer you this option too. You can have both and split your contributions between a 401(k) and a Roth 401(k), so you’ll have both taxable and tax-free withdrawals in retirement, just like if you had a Roth IRA.
So to recap, you definitely want an IRA to save on your own for retirement. Don't rely on just what your employer offers to help you save. In my experience, the more money the better (am I right?!)! Here's a quick reference for you:
Traditional IRA – lower taxes now, potentially higher taxes later.
Roth IRA – No tax benefit now but tax-free withdrawals later.
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