IRA Individual Retirement Account

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Definition of 'IRA Individual Retirement Account'

IRA stands for Individual Retirement Account, which is a type of investment account that is designed to help individuals save for retirement. An IRA allows individuals to contribute pre-tax income to the account, and any earnings on the investment are tax-deferred until the funds are withdrawn.

There are two main types of IRA accounts: traditional IRA and Roth IRA. In a traditional IRA, contributions may be tax-deductible in the year they are made, and taxes are paid on the contributions and earnings when the funds are withdrawn in retirement. In contrast, in a Roth IRA, contributions are made with after-tax income, but qualified withdrawals are tax-free. Both types of IRA have contribution limits and specific eligibility requirements.

IRAs offer several potential benefits, including the ability to save for retirement with tax-advantaged funds, the flexibility to choose from a wide range of investment options, and the ability to continue contributing to the account even after retirement age. However, there may also be limitations and restrictions on when and how funds can be withdrawn, as well as penalties for early withdrawals.

It's important to note that there are many different retirement savings options available, and the best choice will depend on an individual's specific financial situation and goals. Consulting with a financial advisor can help individuals determine whether an IRA is the right choice for them and which type of IRA would be most appropriate.

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