A simple, tax-deductible saving strategy.
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The Traditional IRA is an account that allows you to defer taxes on your earnings until they are withdrawn. Also, certain contributions are tax deductible in the tax year for which they are made.
The Roth IRA is a nondeductible account that features tax-free withdrawals for certain distribution reasons after a five-year holding period. Since Roth IRA contributions are nondeductible and taxed in the year they are earned, people who expect to be in a higher tax bracket when they retire may benefit more from these accounts than from a Traditional IRA.
The Education IRA is a nondeductible account that features tax-free withdrawals for a very specific purpose– a child's higher education expenses. At first glance, the Education IRA looks similar to Traditional and Roth IRAs. After all, higher education distributions are permitted from these accounts as well. The crucial difference is that while qualified higher education distributions from a Traditional or Roth IRA are penalty-free, the same distributions from an Education IRA are penalty-free and tax-free.
Consult your tax advisor regarding how IRA accounts would impact your specific tax situation.