Individual retirement account IRA
What does Individual retirement account IRA mean?
An Individual Retirement Account or IRA is a savings account which allows the investor to save money without paying taxes on the earnings and growth of the savings until the money is withdrawn from the account. There are different types of IRA accounts including SEP IRAs, Simple IRAs, Roth IRAs, and traditional IRAs.
Each of these accounts has their own tax rules, income restrictions, employment restrictions, eligibility requirements, and high penalties if the savings is withdrawn before the designated retirement age.
Additionally, all of the accounts have limits on the amount of money which can be added to the account each year. For example, in 2014 an individual under the age of 50 may contribute the smaller of $5,500 per year or their taxable compensation for the year into a traditional or Roth IRA (exceptions exist for rollover contributions and qualified reservist repayments).
Types of IRA accounts
There are two types of IRA accounts. First, there is the traditional IRA, which offers tax-deferred growth where an individual does not pay taxes on their investment gains until they take the money out for retirement. Contributions to this type of IRA are tax deductible.
Next, there is a Roth IRA. Although this type of saving vehicle is not tax deductible, it does allow for tax-free growth, which means the individual can withdraw the money from the account at their retirement and pay no taxes on the withdrawals.
Boosting your savings
Experts suggest the goal to saving money is to start early so your investment has time to grow. An IRA is the perfect way for many workers to do just that. First a worker should set realistic goals. Next, they should use their employer's 401(k) plan, which allows for immediate tax deduction and tax-deferred growth on their retirement savings. Next, workers must decide whether an IRA will give them the tax advantage they need.
Finally, workers must consider how to make the most tax-efficient withdrawals possible, use stocks to achieve high returns over long periods, and how continue to work if they can. Taking the right steps ensures each worker can get the most benefit possible from their retirement savings. Talk to a financial adviser or lawyer if you have questions about your investment options.
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