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Over 700 finance terms, Shmooped to perfection.
Individual Retirement Accounts (IRAs) are accounts you can pay into now so that your money can grow. By the time you’re having senior moments, this money is supposed to be there for you so that you can pay for stuff.
There are two types of IRAs: Roth IRAs and traditional accounts. The big difference is how you pay taxes on your money.
- With a traditional IRA, you don’t have to pay taxes on the money you put in now, but you are taxed later on when you withdraw money from the account.
- The Roth IRA means you don’t get tax breaks now, but when you’re old and grey and need the money, you won’t generally have to pay taxes on the money you withdraw.
The IRS gets a chunk of your cash either way, but you get to decide when you pay up.