Planning for retirement has always been important. With the uncertain economy planning has become necessary. People should be thinking about retirement planning from the moment they get a job. There are several different types of accounts available that help people maximize their retirement savings. Many jobs offer employees the right to buy in to a 401k plan. Another type of account to consider is an IRA.

What is an IRA? IRA stands for individual retirement account. There are several different IRA options available. The two most popular are a Traditional IRA and a Roth IRA. In either case you receive a great deal of tax benefits while the money in your account grows over time. A Traditional IRA is similar to a 401k except it has nothing to do with your job. Your employer does not match the funds and they have no control over where those funds are invested. The money in a Traditional IRA is tax deductible. That means you receive your tax benefits each year you file taxes. This option is available to anyone and usually carries no income limits for eligibility. When the plan is eligible for withdrawal when you are 59 and one half years old taxes are paid at that time. If you withdraw funds early you are subject to a ten percent penalty. In addition the tax deductions are subject to income limits

A Roth IRA differs in that you are deferring your tax benefit until the time the funds are withdrawn. This means you make your contributions after taxes and they cannot be deducted on your annual returns. The advantage is that when it comes time to withdraw your money you will not owe any taxes on the principal amount or earned amount. A Roth IRA carries an income limit of $95,000 per individual. In many cases funds from a Roth IRA can be withdrawn at any point in time without penalty.

If you are trying to decide rather or not to invest in a Traditional IRA or a Roth IRA you should consider what the tax rates will be when your retire compared with what they will be while you work. If you suspect the tax rate will be lower at retirement then a Traditional IRA is more rewarding. If you think it will be higher you might be better off with a Roth IRA since you are saving more in the long run.