IRA (Individual Retirement Account) - A special account that allows retirement savings to grow tax deferred, and contributions are tax deductible. See related links, below, for much more details on this complex topic.|
Roth IRA - A special retirement account that allows retirement savings that grow and are not taxed when withdrawals are made, as long as the withdrawals are made in accordance with the requirements for a Roth IRA.
Return will vary the figures used here are just to provide an example. If you add $3,000 a year to your IRA (and you are in the 20% tax bracket) you would add $3,000 to a regular IRA account or $2,400 to a Roth IRA (and $600 to the IRS). If you received an annual rate of return of 6% for 30 year you would have $237,175 in your IRA. With the same 6% and 30 years you would have $189,740 in your Roth IRA.
But now the withdrawals from the Roth IRA are tax free and withdrawals from the regular IRA are taxed. If your investment returned stayed 6% and your tax rate stayed 20% you would receive the same amount from each account after taxes $11,384. If you continued to get a 6% rate of return you could take that amount forever.Related Terms: