These plans do not guarantee a predictable stream of income in retirement the way a traditional pension does. The value of your account depends on how much you contribute, when you contribute, and the performance of the investments selected. Income tax on pretax contributions and any investment earnings is deferred until you withdraw them. Recent changes in the tax law may make an IRA more attractive than ever. Depending on your circumstances, you may want to put some money in an IRA before maximizing your contribution to an employer-sponsored plan.
Traditional IRAs provide tax-deferred growth as long as the investment remains in the account.
You might also be able to deduct contributions to a traditional IRA on your income tax return, depending on your situation. When you withdraw deductible contributions and the investment earnings on either deductible or nondeductible contributions, they are taxed as ordinary income. Traditional IRAs can be converted to Roth IRAs, but you will owe tax on any investment earnings and deductible contributions you convert. Deciding whether to use a traditional IRA or a Roth IRA is a complicated process, so you may wish to consult with a financial adviser. To learn more about IRAs, see Types of IRAs in our Retirement Resource Center.