Individual retirement planning relies on tax-advantaged accounts. Traditional IRAs allow eligible individuals to make tax-deductible contributions with tax-deferred compounding; distributions are taxed as ordinary income and are subject to Required Minimum Distributions (RMDs) starting at age 73.
Roth IRAs are funded with after-tax dollars. Earnings compound tax-free and qualified withdrawals (held for at least 5 years and taken after age 59½, death, or disability) are 100% income-tax-free. Roth IRAs carry no required minimum distributions during the owner's lifetime.
Education funding vehicles provide targeted tax incentives. Section 529 Qualified Tuition Programs allow parents and grandparents to contribute large lump sums without donor income phase-outs, growing tax-free for higher education and up to $10,000/yr for K-12 tuition. Coverdell ESAs allow $2,000/yr per child but impose donor income limits and force full liquidation by age 30.