Investing in IRAs and tax-advantaged investments
Besides making contributions to your employer-sponsored retirement plan, you can also save for retirement in Individual Retirement Accounts (IRAs) and in tax-advantaged investments. The two most popular types of IRAs are traditional and Roth IRAs.
- Traditional IRAs permit you to make contributions that are tax deductible and grow tax deferred (meaning you only pay taxes when you withdraw the money from the account).
- Roth IRAs are a bit different in that all contributions are taxable but any withdrawals you make from the account in retirement are exempt from taxes.
Both of these IRAs have contribution limits of $5,000 a year ($6,000 if you are 50 or older). These limits can be lower based on your income and whether you participate in an employer-sponsored plan (for more information, visit the IRS Web site).
If you are not eligible to contribute to an IRA, then your next best option may be a tax-advantaged investment. Such investments include tax-free bonds, mutual funds devoted to minimizing taxes and tax-deferred annuities.
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