(NewsUSA) – In today’s economic climate, saving for retirement has become essential; opening an Individual Retirement Account (IRA) or contributing to an existing IRA account is vital to Americans’ future financial health. While financial advisors recommend that people open and contribute to IRAs as early as possible, it’s never too late to begin.

Not sure where to start? The first thing you need to do is to decide what kind of IRA you would like to open. Traditional IRAs are tax-deferred accounts that allow you to invest earnings in certificates of deposit (CDs), stocks, mutual funds, or money market accounts (MMAs). Because contributions are pretax, they reduce your overall taxable income. However, if you withdraw funds before age 59, you may be subject to a 10 percent tax penalty on your withdrawal.

Depending on your income and whether you’re covered by a retirement plan at work, you can contribute up to $5,000 per year into a traditional IRA (up to $6,000 if you’re over 50).

A second type of IRA, the Roth IRA, is funded through after-tax income. You have to earn an income to open a Roth IRA, but anyone can open one, so long as their income falls below the maximum specified by the IRS.

You can withdraw your contributions to a Roth IRA at any time. To withdraw earnings tax-free, you must be at least 59 1/2 years old and have held the account for at least five years. If you withdraw funds before then, you may face an income tax and a 10 percent penalty. If you earn less than $100,000 per year, you can convert a traditional IRA to a Roth IRA, allowing your assets to grow tax-free.

If you can’t afford to contribute to both a traditional IRA and a Roth IRA, many financial advisors recommend choosing the latter option, as Roth IRAs allow you to fund your retirement without paying extra taxes.

When it comes to saving for retirement, most banks offer both traditional and Roth IRA CDs. For information about AAA’s Deposit Program, visit AAA.com/Deposits or call 1-888-728-3230.

Deposit products offered by Discover Bank, Member FDIC.