An Individual Retirement Account (IRA) is a tax-advantaged way to save money for retirement. While there are employer-backed retirement plans, such as a 401(k), that isn’t always an available option for workers, such as freelancers. Retirement funds, as well as IRAs, have annual contribution limits, so many people contribute to both 401(k)s and IRAs.

Not all IRAs have the same policies as there are several types of accounts. The main ones you will hear about are Traditional and Roth IRAs. The main difference relates to how taxes are handled and income eligibility.

Traditional IRA – The most popular type of IRA, you can contribute up to $6,000 per year, which could be deducted from your taxable income. If you’re over 50, you are eligible for an additional $1,000 “catch-up” contribution, bringing the annual limit up to $7,000. You may not have to pay taxes on the growth of the account. Instead, you pay taxes at the time of withdrawal. Unlike Roth IRAs, there is not an income limit for traditional IRAs.

Roth IRA – You’ve already paid taxes on the money you contribute, so your money grows tax free and offers tax free withdrawals after you’ve owned the account for five years and your age is at least 59 ½. The contribution limits are the same as traditional IRAs; however, there is an income limit of $139,000 if you’re filing taxes as a single person for the tax year 2020 ($206,000 if you’re filing jointly). It is possible to qualify for Roth IRAs after exceeding income limits; people often max out their 401(k) and traditional IRA in order to lower their taxable income.

Does allow me to invest my retirement assets?

While can serve as a vehicle for building retirement money, it does not currently support traditional retirement funds such as 401(k)s, IRAs or Roth IRAs.

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