What is Individual Retirement Account (IRA) and It's Benefits

An individual retirement account (IRA) is a tax-advantaged investment account that is designed to help individuals save for retirement.

[{"selector":"#anim-54873b6a-daab-461b-a844-d825818230e0","keyframes":{"opacity":[0,1]},"delay":0,"duration":1500,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-c47e5c4a-7ab4-4fce-8cab-82629fd861a1","keyframes":{"transform":["translate3d(-114.51104%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":1500,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}]

There are two types of IRAs: traditional and Roth. Traditional IRAs allow you to contribute pre-tax dollars and pay taxes on your contributions and earnings when you withdraw the money in retirement. Roth IRAs, on the other hand, allow you to contribute after-tax dollars and withdraw the money tax-free in retirement.

[{"selector":"#anim-50119871-6f9f-46ef-9784-4a212e2ff796","keyframes":{"opacity":[0,1]},"delay":0,"duration":1500,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-e890cc3d-6639-4e7a-b5ac-bfdfef2bde12","keyframes":{"transform":["translate3d(114.82649%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":1500,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}]

Both traditional and Roth IRAs have annual contribution limits set by the IRS, and the maximum contribution amount can vary based on your age and income level.

[{"selector":"#anim-7065a8b2-9879-4f17-94ab-6f7424efb116","keyframes":{"opacity":[0,1]},"delay":0,"duration":1400,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-767ab17f-8c5e-4256-ba03-11faf42fa9dc","keyframes":{"transform":["translate3d(0px, 182.68924%, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":1400,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}]

IRAs offer a wide range of investment options, including stocks, bonds, mutual funds, and exchange-traded funds (ETFs). Contributions to traditional IRAs may be tax-deductible, which can lower your taxable income for the year in which you make the contribution.

[{"selector":"#anim-e990c06d-277e-4b6a-97a5-4a79b14ef9d5","keyframes":{"opacity":[0,1]},"delay":200,"duration":1400,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-99f6aa5b-2ec7-4926-bfde-3d2eddce3566","keyframes":{"transform":["translate3d(0px, -174.31261%, 0)","translate3d(0px, 0px, 0)"]},"delay":200,"duration":1400,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}]

One of the main benefits of IRAs is that they offer tax-deferred growth, meaning that you won't pay taxes on any investment gains until you withdraw the money from the account.

[{"selector":"#anim-8c3f652e-8ade-4a24-8457-8c931d6311a2","keyframes":{"opacity":[0,1]},"delay":500,"duration":2000,"easing":"cubic-bezier(0.4, 0.4, 0.0, 1)","fill":"both"}]

IRAs also offer flexibility in terms of when you can withdraw your money. While there are penalties for early withdrawals before the age of 59 ½, there are exceptions for certain circumstances, such as medical expenses or purchasing a first home.

[{"selector":"#anim-4fe4556b-14c2-4c11-a4e1-25cf7f43744b","keyframes":{"opacity":[0,1]},"delay":100,"duration":1000,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-a622605f-aad0-4a8a-9c9d-4b5b510e2c84","keyframes":{"transform":["translate3d(0px, -160.4901%, 0)","translate3d(0px, 0px, 0)"]},"delay":100,"duration":1000,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}]

IRAs can be a good option for self-employed individuals, as they offer additional contribution options through simplified employee pension (SEP) IRAs and solo 401(k) plans.

[{"selector":"#anim-417e94a9-5fbd-4221-973c-eb266f289168","keyframes":{"opacity":[0,1]},"delay":0,"duration":1500,"easing":"cubic-bezier(.3,0,.55,1)","fill":"both"}] [{"selector":"#anim-ed59f4dd-c1a8-4349-95fd-0f94f6736351","keyframes":{"transform":["scale(0.3333333333333333)","scale(1)"]},"delay":0,"duration":1500,"easing":"cubic-bezier(.3,0,.55,1)","fill":"forwards"}]

Unlike 401(k) plans, IRAs do not require an employer to set up and manage the account. This means that individuals have more control over their retirement savings.

[{"selector":"#anim-0b16acb0-3a79-4f31-84fd-949d44d93c00","keyframes":[{"transform":"scale(1)","offset":0},{"transform":"scale(1.5)","offset":0.33},{"transform":"scale(0.95)","offset":0.66},{"transform":"scale(1)","offset":1}],"delay":0,"duration":1450,"easing":"ease-in-out","fill":"both","iterations":1}]