Individual retirement plan (IRA)

An Individual Retirement Account is a personal savings plan that offers tax advantages to help you save for retirement. An IRA can be opened by anyone with earned income, regardless of whether they are employed by a company or are self-employed.

Note: IRAs are available to US citizens and residents, as well as US citizens living abroad.

The two types of IRAs

There are two main types of IRAs: traditional and Roth. With a traditional IRA, you make contributions with pretax dollars, which reduces your current taxable income. Your earnings grow tax-deferred, and you pay taxes on the money you withdraw in retirement.

With a Roth IRA, you make contributions with after-tax dollars, so your taxable income is not reduced. However, your earnings grow tax-free, and you can withdraw your money tax-free in retirement.

IRA usage

You can contribute to an IRA up to a certain amount each year, depending on your age and income. For 2020, the contribution limit is $6,000 ($7,000 if you’re age 50 or older). If you have a 401(k) or other employer-sponsored retirement plan, your IRA contribution limit may be reduced.

You can open an IRA at a bank, credit union, brokerage firm, or other financial institution. Once you open an IRA, you can choose how to invest your money. Many people invest in a mix of stocks, bonds, and mutual funds.


When you reach age 59½, you can start withdrawing money without paying a penalty. However, you will still owe taxes on the money you withdraw. If you withdraw money before age 59½, you may have to pay a 10% early withdrawal penalty, in addition to taxes.


There are several things to consider before opening an IRA, such as your investment goals, risk tolerance, and time horizon. You should also be aware of the rules and regulations associated with IRAs. For the rules, visit the official government website.

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