Individual Retirement Account

Better known as an IRA, an individual retirement account is a type of account that is intended to help you save for your golden years. Designed to encourage people to save for their retirement, the IRA comes with tax breaks which you get either now or when you retire. There are two types of IRAs. The traditional IRA provides a tax deduction for some portion of the amount you put away. In contrast, with a Roth IRA you don’t get an upfront tax break but you do get to withdraw your savings plus profits without paying a single dime in taxes on that future distribution during retirement. With both types of IRAs, the interest, dividend and capital gains over the years are not subject to taxes. There are limitations to the amount you can stash away in an IRA each year, but you can invest in many different instruments – equities, mutual funds, bonds, exchange traded funds or keep it in cash. There are also penalties that come into play with both types of IRAs if you choose to take money out of the account “early” or before reaching 59 ½.