IRA (Individual Retirement Account)
An individual retirement account (IRA) is a type of savings account that allows individuals to save for retirement with tax-free growth or on a tax-deferred basis. IRAs are available to anyone with earned income, regardless of age, and are a great way to save for retirement. Contributions to an IRA are limited by the Internal Revenue Service (IRS) and are subject to income limits. Withdrawals from an IRA are taxed as ordinary income and may be subject to an additional 10% penalty if taken before age 59 1/2.
History of the Term
The individual retirement account (IRA) was first introduced in 1974 as part of the Employee Retirement Income Security Act (ERISA). The IRA was designed to provide individuals with a tax-advantaged way to save for retirement. Since then, the IRA has become one of the most popular retirement savings vehicles in the United States. In addition to traditional IRAs, there are now Roth IRAs, SEP IRAs, SIMPLE IRAs, and other types of IRAs.
Comparison Table
| Type of IRA | Contribution Limit | Tax Treatment |
|---|---|---|
| Traditional IRA | $6,000 | Tax-deferred |
| Roth IRA | $6,000 | Tax-free |
| SEP IRA | $57,000 | Tax-deferred |
| SIMPLE IRA | $13,500 | Tax-deferred |
Summary
An individual retirement account (IRA) is a type of savings account that allows individuals to save for retirement with tax-free growth or on a tax-deferred basis. Contributions to an IRA are limited by the Internal Revenue Service (IRS) and are subject to income limits. Withdrawals from an IRA are taxed as ordinary income and may be subject to an additional 10% penalty if taken before age 59 1/2. For more information about IRAs, visit the IRS website or consult a financial advisor.
See Also
- 401(k)
- 403(b)
- Roth IRA
- SEP IRA
- SIMPLE IRA
- Annuity
- Tax-deferred
- Tax-free
- Traditional IRA
- Rollover IRA
