Individual Retirement Accounts (IRAs)

IRAs come in two flavors – traditional and Roth. Both provide tax breaks, but the choice lies in the timing. Traditional IRA contributions you make are both state and federal tax deductible in the year they are made. Later withdrawals are taxed at ordinary income rates, and come at a time when you’ll likely be in a lower tax bracket.

Roth IRAs don’t get a tax break for deductions. So it’s a matter of timing when you wish to benefit from the tax break. Traditional IRAs avoid taxes when you deposit your money. Roth IRAs benefit you later, when you withdraw funds in retirement.

You can use any investment vehicle you prefer (stocks, mutual funds, bonds, etc) to grow the funds held in your IRA.