IRA Overview: Traditional and Roth IRAs

There are many ways to save for your retirement. Through a company-sponsored retirement plan such as a 401(k), investing in mutual funds that are earmarked for retirement, and tried and true individual retirement accounts (IRAs) with their counterpart, Roth IRAs.

A Traditional IRA is a retirement account that allows you to set aside money each year. A key benefit of an IRA is that your savings and earnings grow tax deferred, so you don't have to pay income taxes until you make withdrawals.¹ The hypothetical example below demonstrates the power of tax-deferred compounding. It assumes that an investor contributes $100 a month for 30 years to an IRA with an 8% annual rate of return. At the end of the period, the account would have grown to $146,720. If the investor contributed the same amount to a taxable account, after 30 years the account would have grown to only $96,005.

Tax Deferred Asset May Grow Faster
Close up of IRA literature

In addition to the benefits of tax-deferred compounding, contributions to an IRA may be fully or partially deductible from your income taxes. To be eligible to receive the deduction, all of the following requirements must be met. You must:

  • Have earned income,
  • Be younger than age 70½, and
  • Satisfy the income requirements shown below if you are covered by an employer-sponsored retirement plan.

Learn More Today

A Traditional IRA and Roth IRA can be powerful tools to help you save for a secure retirement. To learn about these accounts, their benefits and restrictions, contact your financial professional or call 800-MAINSTAY (624-6782).

1. An additional 10% federal tax penalty may apply for withdrawals made prior to age 59½.