Traditional IRA – tax-deferred retirement savings account. No taxes are paid on your money until you make withdrawals. Deferring taxes means all of your dividends, interest payments and capital gains can compound each year without being hindered by taxes – allowing an IRA to grow much faster than a taxable account.
Roth IRA – a retirement savings account that allows your money to grow tax-free. You fund a Roth with after-tax dollars, meaning you’ve already paid taxes on the money you put into it. In return for no up-front tax break, your money grows and grows tax free, and when you withdraw at retirement, you pay no taxes.
Coverdell ESA IRA – Education savings account that is designed exclusively for paying the qualified education expenses of a designated beneficiary of the account. Funds contributed to a Coverdell ESA grow tax free and may be distributed tax free if they are used to pay for the educational costs of your beneficiaries. Two thousand dollars per year is the annual contribution limit per each designated beneficiary.
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