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What is an IRA?
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An IRA is an individual retirement account that can benefit anyone who works or is self-employed. You can open your own IRA account at a bank or with an investment company such as T. Rowe Price or any of the hundreds of such companies. Some employers sponsor IRAs for their own benefit and that of their employees.
The advantage of an IRA is that your investment will grow tax free. No taxes will be due on your earnings until you withdraw them. Regulations allow you to make withdrawals from your IRA once you reach age 59 and a half. If you make a withdrawal before that age you may be subject to a penalty amounting to ten percent of your withdrawal amount. You must also pay income tax on earnings and any principal that had been deducted on a previous tax return.
There are five types of IRAs.
- Traditional IRA
- Education IRA
- Roth IRA
Employer-sponsored IRAs
- Simple IRA
- SEP IRA
Each type of IRA has its own rules regarding how much you can contribute each year and how much of your contribution is deductible.
Even if you have a retirement account through your job, you should consider investing in an IRA as part of your overall financial plan. Consult with a financial advisor for assistance in choosing the best plan for you. You might start with the human resource department at your job.
For more information:
Five types of IRAs
Contribution limits
Retirement plans FAQs regarding IRAs from the IRS
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