Can you explain what an IRA is (Traditional and Roth) as opposed to a regular savings account?

I understand that IRA savings accounts have a higher dividend rate, but that all I know.





Please put your answer in simple English. I got a technical answer from someone already, and it made little sense. Hence, this question.





Thanks!
Can you explain what an IRA is (Traditional and Roth) as opposed to a regular savings account?
IRAs are Individual Retirement Accounts. These accounts have special tax treatment and withdrawal restrictions unlike your typical savings account which provides free access to your money at any time.





Since IRAs are meant for retirement, you typically only put money into these accounts that you won't need until you reach retirement age. generally speaking, there is a penalty if you withdraw money from an IRA before you reach age 59.5.





The main difference between a Traditional IRA and a Roth is how the money is taxed. Money added to a traditional IRA is tax deductible. This means if you put $2,000 in an IRA this year, you'd typically get to deduct $2,000 from your taxable income, thus saving on your current income taxes. But, when you withdraw the money from a Traditional IRA at some point in the future, it's taxed as income.





A Roth IRA on the other had has no immediate tax benefits, but qualified withdrawals are tax-free. This means you won't get a tax break up front for putting money into a Roth, but when you withdraw the money in retirement it will be completely tax free.





So, if you are looking to save money for retirement and know that you won't need it for a long time, an IRA can be a good idea. But if you're investing money you might need in an IRA just to get a better rate of return, you could be doing more harm than good since you are usually penalized for early withdrawals.





There are a number of special circumstances and a wide variety of investment choices with IRAs that need to be taken into consideration, so it might be best to get some good advice before jumping in.





So, remember: savings accounts are liquid and give you access to your money at any time. IRAs are meant for money you won't likely need until retirement and come with special tax benefits, but may have penalties if you don't use them properly.