Types

• There are two main types of personal IRA accounts: the traditional IRA and the Roth IRA. Both types of IRAs offer tax-free growth on the funds invested within them. A traditional IRA may offer certain taxpayers a deduction on contributions, but Roth IRAs provide a different tax benefit.
  
  

Tax Benefits

• The primary benefit of a Roth IRA is savings on taxes. All capital gains and interest on money inside a Roth IRA accrue tax-free within the account. When those funds are withdrawn during retirement, they do not count as income and are not taxed.
  
  

No Required Minimum Withdrawals

• Unlike qualified retirement plans like a 401k and traditional IRA accounts, a Roth IRA does not require taxpayers to withdraw a minimum amount from the account each year after reaching age 70 1/2.
  
  

Tax-Free Withdrawals of Contributions

• Another benefit of Roth IRAs is that the total amount of contributions made into the account can be withdrawn at any age without penalty or additional taxes. Thus, if a taxpayer contributed $3,000 per year for five years to a Roth IRA, up to $15,000 can be withdrawn from the account without paying any taxes or penalties.
  
  

Considerations

• While withdrawals of contributions made to the account may be made penalty-free at any time, all gains and earnings from the contributions must remain in the account until the owner is age 59 1/2. Amounts exceeding the total amount of contributions that are withdrawn from the account are subject to a 10 percent penalty and ordinary income taxes.