IRA stands for “Individual Retirement Arrangement.” An IRA is a special type of account intended to hold assets for an individual person’s retirement. Individuals may open traditional or Roth IRAs, but what is the difference?

Traditional IRAs usually provide a tax benefit now to the owners. Contributions (deposits) to a traditional IRA may be tax deductible if the individual qualifies. Then, when the money is withdrawn during retirement years, the funds will be reported as income.

Roth IRAs usually provide a tax benefit in the future to owners. Contributions are not usually tax deductible at the time they are made, but most Roth assets can be withdrawn tax-free during retirement years.

A person can have both types of IRAs and also multiple IRA accounts at multiple financial institutions. The important thing to remember is that between any and all IRAs you may have, you may only contribute up to $5,500 per year. If you are age 50 or older you may contribute an additional $1,000 each year. If you have multiple IRAs it is important to keep track of all your deposits to avoid any excess contributions.