- An individual retirement account (IRA) is a tax-advantaged investment account independent of your employer, suitable for self-employed individuals or as a supplement to workplace savings like a 401(k). IRAs come in various types, with traditional IRAs funded with pre-tax money and Roth IRAs funded with after-tax dollars for tax-free distributions after age 59 ½. Other IRA types include SEP, SIMPLE, Custodial, Spousal, and Inherited IRAs. Contribution limits for 2025 and 2026, as well as early withdrawal penalties, vary between traditional and Roth IRAs.
- Opening an IRA involves choosing between a Roth or traditional account, selecting a provider based on fees, investment options, and advisor access, providing personal information to open the account, funding the account, and selecting investments. Rolling over a 401(k) into an IRA can lower fees and provide more investment options. Contributions must not exceed earned income, and IRA loans are prohibited by the IRS.
- Investing in an IRA aims to achieve tax-deferred growth, with performance dependent on investment choices. For example, investing in an S&P 500 index fund with average annual returns of 10% could yield substantial growth over time. Understanding IRA rules, contribution limits, and investment options is crucial for maximizing retirement savings.
Read more at Yahoo Finance: What is an IRA, and how does it work?