What is an IRA?
An IRA, or Individual Retirement Account, is a type of savings account that provides tax benefits for individuals aiming to save for retirement. There are several types of IRAs, each offering unique tax advantages. The most common types are the Traditional IRA and the Roth IRA. Contributions to a Traditional IRA may be tax-deductible, with taxes deferred until the money is withdrawn in retirement. In contrast, contributions to a Roth IRA are made with after-tax dollars, allowing for tax-free withdrawals during retirement.
An IRA can hold a variety of investments, including stocks, bonds, mutual funds, and other assets, providing flexibility in building a diversified retirement portfolio. Individuals can open an IRA through banks, brokerage firms, or other financial institutions, allowing them to manage their investment strategy according to their retirement goals.
The annual contribution limits to an IRA are set by the IRS, and there are penalties for withdrawing funds before the age of 59½ unless an exception applies. IRAs are popular for their tax benefits, helping individuals grow their retirement savings in a tax-efficient manner, with choices tailored to current and future tax considerations.