Benefits of an IRA

In addition to delivering the powerful growth potential of a regular savings account, individual retirement accounts like our Roth IRA, Traditional IRA, and Coverdell ESA come with tax advantages that magnify your earnings.

Because you already pay income taxes on the contributions you make to a Roth IRA, you don’t have to pay taxes on Roth IRA earnings or when you take distributions from your Roth IRA account. This tax advantage makes a Roth IRA a great way to reduce taxes in retirement for those who qualify. To contribute, those who file their taxes as single must have a modified adjusted gross income (MAGI) of less than $161,000 in 2024. For those who are married and filing jointly, the MAGI must be under $240,000 in 2024 to contribute.

With a Traditional IRA, the contributions you make reduce your current tax liability. In other words, your Traditional IRA contributions are tax-deductible, and your earnings will grow tax-deferred – meaning you will pay taxes on the growth in retirement. A Traditional IRA is a great option if you expect your income in retirement to be lower than it is now. While anyone can contribute to a Traditional IRA regardless of income, whether you can deduct your contributions depends on your income. You can deduct the full contribution if your MAGI is $77,000 or less in 2024 for single filers and $230,000 for married filing jointly. Those with higher incomes can make partial deductions until their income reaches $87,000 for single filers or $240,000 for joint filers in 2024.

For a Coverdell ESA for education expenses, contributions of up to $2,000 per year can be made for any beneficiary who is under the age of 18. As with a Roth IRA, contributions are not tax-deductible, but earnings grow tax-free. Single filers who earn no more than $110,000 or joint filers making no more than $220,000 may make the full $2,000 contribution, while contribution amounts are reduced for those earning more.