ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A traditional IRA is a way to save for retirement that gives you tax advantages. Generally, amounts in your traditional IRA (including earnings and gains) are not taxed until you take a distribution (withdrawal) from your IRA.

Detailed explanation-2: -With a Traditional IRA, your money can grow tax deferred, but you’ll pay ordinary income tax on your withdrawals, and you must start taking distributions after age 73.

Detailed explanation-3: -Unlike a savings account that pays an interest rate, an IRA does not pay an interest rate. An IRA account can be compared to an empty basket that has to be filled with investment products such as stocks, bonds, ETFs, certificates of deposits, etc. to earn interest.

Detailed explanation-4: -With a Roth IRA, you contribute after-tax dollars, your money grows tax-free, and you can generally make tax-and penalty-free withdrawals after age 59½. With a Traditional IRA, you contribute pre-or after-tax dollars, your money grows tax-deferred, and withdrawals are taxed as current income after age 59½.

Detailed explanation-5: -A tax-deferred savings plan is an investment account that allows a taxpayer to postpone paying income taxes on the money invested until it is withdrawn, generally after retirement. The best-known such plans are individual retirement accounts (IRAs) and 401(k) plans.