Yesterday I did a deep dive in looking over IRAs. IRA stands for Individual Retirement Account. There are plenty of different retirement plans such IRA’s, 401(k)s, 403(b)s and others. Each of them have possible tax benefits. Check with your accountant about what rules exactly applies to you.
Traditional IRA
A traditional IRA is defined as being a pre-taxed deduction for tax purposes. Potentially, if you make $50k of income per year and put in $5k, you could lower you taxable income by $5k. However, there are some rules around this that you should be aware of. If your income is over the Traditional IRA contributing threshold, then there could be no tax benefits. This could now result in your money being tied up into an account until retirement age, or being penalized for withdrawing the money early.
Roth IRA
A Roth IRA is defining characteristic is that it is used with after taxed dollars to invest, but withdrawals are taxed exempt if the right criteria is met.
Famously Peter Thiel was able to turn this retirement vehicle into a billion dollars.
