IRAs

Unlike most investments, the interest earned on a Traditional IRA is not taxable in the year it is received. In fact, your IRA earnings aren't subject to taxation until they are removed from the account.

This tax deferment allows your savings to grow faster and is perhaps the greatest long-term benefit of the Traditional IRA. Tax deferral on gains leaves more money in the account to compound, allowing an investment to grow larger than it would if taxes were paid along the way.

Depending on eligibility, some investors are permitted to deduct IRA contributions from their federal income tax.

Withdrawals may be made from a Traditional IRA without tax penalty by individuals under the age of 59 ½ for certain qualified purposes.

Although contributions are not tax deductible, the earnings accumulate tax free. Deposits are taxed up front, but the future payoff could be greater.

After five years with a Roth IRA, qualified homebuyers can withdraw up to $10,000, tax free, per lifetime before age 59 ½ for a first-time home purchase.

You cannot be barred from opening a Roth IRA just because you are covered by a retirement plan at work or contribute to a self-employment plan such as a Keogh account. What's more, if a child earned $3,000, a parent could put $3,000 into a Roth IRA for the child.

Roth IRAs can also be an estate-planning tool—with no mandatory withdrawal age, funds can compound for an heir.