Individual retirement accounts are likely the investment accounts most people are familiar with, and include both a Traditional IRA and a Roth IRA. Both of these have tax advantages and can be used in conjunction with a 401(k) plan (if your income qualifies).
Traditional IRA
With a Traditional IRA, you make contributions with money you may be able to deduct on your tax return. Any earnings potentially grow tax-deferred until you withdraw them in retirement.
The great thing about a Traditional IRA is that you can generally have a one even if you have an employer-sponsored plan available at your day job.
PROS:
- Unlimited Investing Options – IRAs are completely self-directed, which will enable you to have virtually unlimited investment options.
- Portable Accounts – The plans are also completely portable, and not in any way dependent upon any particular job.
- Easily Transfer Trustees – You can also transfer the account from one trustee to another whenever you like.
CONS:
- No Employer Match – The contribution amounts on IRAs are much lower than what they are for 401(k) plans. And since there is no employer sponsoring it, there is no employer matching contribution either.
- Uncertain Tax Deductions – Contributions to a Traditional IRA may not always be tax deductible. The deduction is phased out above a certain income level if you are covered by a retirement plan at work.