Individual Retirement Account (IRA)

An individual retirement account (IRA) is a type of investment tool that individuals use to allocate funds for retirement. There are two predominant types of IRAs: traditional IRAs and Roth IRAs.

Contributions to traditional IRAs are tax-deductible, which allows individuals to claim contributions as a deduction on their tax returns. When the individual withdraws these funds from the account during retirement, these funds are taxed at an ordinary income tax rate.

Roth IRA contributions are not tax-deductible. Individuals who earmark funds in Roth IRAs do not incur income taxes when withdrawing funds from the account during retirement.

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