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IRA: Individual Retirement Account

Definition

The acronym IRA is a banking term that stands for Individual Retirement Account. An IRA is unique as it can be done on your own unlike a 401(k) which is given to you by your employer.

Tax benefits

You can receive significant tax breaks on the money you put in an IRA. If you never withdraw the money you place into your IRA until you are 59.5 years old, its earnings wil not be taxed until then.

Not an investment

An IRA must not be confused with an investment. It is an account. However, it is an account where you can keep investments like stocks, bonds, mutual funds, and more together.

Styles

Last but not the least, IRAs can be set up in different styles. Different styles of IRAs are traditional and Roth IRAs, as well as SEP and SIMPLE IRAs.

Each style has its restrictions that are dictated by your job situation and income. Also, each style has contribution limitations as well as penalties for specific actions.