Your Roth IRA withdrawals are tax-free as long as you're 59 and a half or older and your account is at least five years old. Withdrawals from traditional IRA accounts are taxed as regular income, depending on the tax bracket of the year in which you make the withdrawal. No matter what stage of life you're in, it's never too early to start planning for your retirement, as even the small decisions you make today can have a big impact on your future. While you may have already invested in an employer-sponsored plan, an Individual Retirement Account (IRA) allows you to save for your retirement in parallel and also potentially save on taxes.
There are also different types of IRA, with different rules and benefits. With a Roth IRA, you contribute money after taxes, your money grows tax-free, and you can generally make tax-free and penalty-free withdrawals after age 59 and a half. With a traditional IRA, you contribute money before or after taxes, your money grows with deferred taxes, and withdrawals are taxed as current income after age 59 and a half. Income from a Roth account may be tax-exempt rather than deferred.
Therefore, you can't deduct contributions to a Roth IRA. However, withdrawals you make during retirement may be tax-free. The IRS exceptions are a little different for IRAs and 401 (k) plans; they even vary slightly for different types of IRAs. There are some exceptions due to financial hardship to the penalties for withdrawing money from a traditional IRA or from the investment earnings portion of a Roth IRA before turning 59 and a half years old.
The other time you risk receiving a tax penalty for withdrawing money early is when you transfer money from one IRA to another qualified IRA. There are several IRA options and many places to open these accounts, but the Roth IRA and the traditional IRA are by far the most popular types.