An IRA stands for “individual retirement account” and this means you don’t have to have a retirement plan through your work in order to save, because you can set these up on your own. However, in order to save in an IRA, you must have earned income for the year. A Roth IRA is different from a Traditional IRA because you save money for retirement that is ‘after-tax’ money – this is money that you have already paid taxes on. Another difference is that a Roth IRA allows your retirement savings to grow tax-free – when you retire after age 59 1/2 and take qualified distributions, you don’t have to pay tax!
This is the major advantage of a Roth IRA over a Traditional IRA. However, there are rules about who can contribute to a Roth IRA, so make sure to do your due diligence to see if you can contribute to one. In general, IRAs can be a great way to save for retirement either on their own or in combination with a workplace retirement plan.
