In this section we will provide an overview of different retirement accounts available.
A Traditional IRA (Individual Retirement Account) is a tax-advantaged retirement savings account where individuals can contribute pre-tax dollars, and the contributions may be tax-deductible. The earnings in a Traditional IRA grow tax-deferred until withdrawal, usually in retirement, when they are subject to income tax.
A Roth IRA (Individual Retirement Account) is a retirement savings account where individuals contribute after-tax dollars, and qualified withdrawals, including earnings, are tax-free. Unlike a Traditional IRA, contributions to a Roth IRA are not tax-deductible, but the account offers tax-free growth and tax-free withdrawals in retirement.
A Traditional 401(k) is an employer-sponsored retirement savings plan where employees can contribute a portion of their pre-tax earnings to individual investment accounts. Contributions to a Traditional 401(k) are tax-deductible, and both contributions and earnings grow tax-deferred until withdrawal, usually in retirement, when they are subject to income tax.
A Roth 401(k) is an employer-sponsored retirement savings plan that combines features of a traditional 401(k) and a Roth IRA. Employees contribute after-tax dollars to individual investment accounts, and qualified withdrawals, including earnings, are tax-free in retirement, offering a tax-free growth benefit.