There are two types of IRAs – traditional and Roth IRAs. More than a third of U.S. households have one or the other – and sometimes both – although relatively few account holders make regular contributions. Only about 12% of American households contribute to an IRA each year, even though most wage-earners would qualify to make annual contributions.iii (See: Traditional IRA vs. Roth IRA: Which is Right for You?)
Regardless of which type of IRA you choose, you would typically have the flexibility of allocating your contributions to a variety of investments, including a wide range of mutual funds and other securities that may offer the potential for long-term appreciation. However, keep in mind, investments are not guaranteed to increase in value, and may in fact lose money. Historically, stock and bond markets have been volatile in the short term, but their performance has tended to even out over the long term as the economy moved through its various cycles.
For more about contributing to an IRA, see IRA contribution rules and limits.
Which type of IRA is right for you? There are several distinctions between the two, as well as some similarities. Both are designed to encourage Americans to save and invest for retirement, and both provide tax-deferred growth on investment gains within the account.
Before you make your choice, you may want to compare the primary benefits and drawbacks of each: